Rules and Policies To Promote New Entry and Ownership Diversity in the Broadcasting Services, 43773-43792 [2018-18289]
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Federal Register / Vol. 83, No. 167 / Tuesday, August 28, 2018 / Rules and Regulations
ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Part 300
[EPA–HQ–SFUND–2003–0010; FRL–9982–
84—Region 7]
National Oil and Hazardous
Substances Pollution Contingency
Plan; National Priorities List: Partial
Deletion of the Omaha Lead Superfund
Site
Environmental Protection
Agency (EPA).
ACTION: Final rule.
AGENCY:
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FOR FURTHER INFORMATION CONTACT:
Elizabeth Hagenmaier, Remedial Project
Manager, U.S. Environmental Protection
Agency, Region 7, SUPR/LMSE, 11201
Renner Boulevard, Lenexa, KS 66219,
telephone (913) 551–7939, email:
hagenmaier.elizabeth@epa.gov.
The
portion of the site to be deleted from the
NPL are 101 residential parcels of the
Omaha Lead Superfund site, Omaha,
Nebraska. A Notice of Intent for Partial
Deletion for this Site was published in
the Federal Register (83 FR 29731) on
June 26, 2018.
The closing date for comments on the
Notice of Intent for Partial Deletion was
July 26, 2018. One public comment was
received which was not site-related and
EPA has determined it will proceed
with the partial deletion.
EPA maintains the NPL as the list of
sites that appear to present a significant
risk to public health, welfare, or the
environment. Deletion of a site from the
NPL does not preclude further remedial
action. Whenever there is a significant
release from a site deleted from the NPL,
the deleted site may be restored to the
NPL without application of the hazard
ranking system. Deletion of portions of
a site from the NPL does not affect
responsible party liability, in the
unlikely event that future conditions
warrant further actions.
SUPPLEMENTARY INFORMATION:
Environmental Protection
Agency (EPA) Region 7 announces the
deletion of 101 residential parcels of the
Omaha Lead Superfund site (Site or
OLS) located in Omaha, Nebraska, from
the National Priorities List (NPL). The
NPL, promulgated pursuant to section
105 of the Comprehensive
Environmental Response,
Compensation, and Liability Act
(CERCLA) of 1980, as amended, is an
appendix of the National Oil and
Hazardous Substances Pollution
Contingency Plan (NCP). The EPA and
the State of Nebraska, through the
Nebraska Department of Environmental
Quality, determined that all appropriate
Response Actions under CERCLA were
completed at the identified parcels.
However, this deletion does not
preclude future actions under CERCLA.
This partial deletion pertains to 101
residential parcels. The remaining
parcels will remain on the NPL and are
not being considered for deletion as part
of this action.
DATES: This action is effective August
28, 2018.
ADDRESSES: EPA has established a
docket for this action under Docket ID
no. EPA–HQ–SFUND–2003–0010. All
documents in the docket are listed on
the https://www.regulations.gov website.
Although listed in the index, some
information is not publicly available,
i.e., Confidential Business Information
or other information whose disclosure is
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material, such as copyrighted material,
is not placed on the internet and will be
publicly available only in hard copy
form. Publicly available docket
materials are available either
electronically through https://
www.regulations.gov or in hard copy at
the site information repositories.
Locations, contacts, and viewing hours
of the Site information repositories are:
• EPA Region 7, 11201 Renner
Boulevard, Lenexa, Kansas 66219, open
from 8 a.m. to 4 p.m. Monday–Friday.
SUMMARY:
• W. Dale Clark Library, located at
215 S 15th Street, Omaha, NE 68102,
open 10 a.m. to 8 p.m. Monday–
Thursday; 10 a.m. to 6 p.m. Friday and
Saturday; and 1 p.m. to 6 p.m. Sunday.
List of Subjects in 40 CFR Part 300
Environmental protection, air
pollution Control, Chemicals,
Hazardous waste, Hazardous
substances, Intergovernmental relations,
Penalties, Reporting and recordkeeping
requirements, Superfund, Water
pollution control, Water supply.
Authority: 33 U.S.C. 1321(d); 42 U.S.C.
9601–9657; E.O. 13626, 77 FR 56749, 3 CFR,
2013 Comp., p. 306; E.O. 12777, 56 FR 54757,
3 CFR, 1991 Comp., p. 351; E.O. 12580, 52
FR 2923, 3 CFR, 1987 Comp., p. 193.
Dated: August 10, 2018.
James B. Gulliford,
Regional Administrator, Region 7.
[FR Doc. 2018–18525 Filed 8–27–18; 8:45 am]
BILLING CODE 6560–50–P
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FEDERAL COMMUNICATIONS
COMMISSION
47 CFR Part 73
[MB Docket No. 17–289, FCC 18–114]
Rules and Policies To Promote New
Entry and Ownership Diversity in the
Broadcasting Services
Federal Communications
Commission.
AGENCY:
ACTION:
Final action.
In this document, the Federal
Communications Commission
establishes the requirements that will
govern the incubator program that the
Commission decided to adopt to
support the entry of new and diverse
voices into the broadcast industry.
SUMMARY:
This action contains information
collection requirements that have not
been approved by the Office of
Management and Budget (OMB). The
Commission will publish a document in
the Federal Register announcing the
approval date for the information
collection requirements.
DATES:
Federal Communications
Commission, 445 12th Street SW, Room
TW–C305, Washington, DC 20554.
ADDRESSES:
FOR FURTHER INFORMATION CONTACT:
Radhika Karmarkar,
Radhika.Karmarkar@fcc.gov, or 202–
418–1523.
This is a
summary of the Commission’s Report
and Order, FCC 18–114, in MB Docket
No. 17–289, adopted on August 2, 2018,
and released on August 3, 2018. The
complete text of this document is
available electronically via the search
function on the FCC’s Electronic
Document Management System
(EDOCS) web page at https://
apps.fcc.gov/edocs_public/ (https://
apps.fcc.gov/edocs_public/). The
complete document is available for
inspection and copying in the FCC
Reference Information Center, 445 12th
Street SW, Room CY–A257,
Washington, DC 20554 (for hours of
operation, see https://www.fcc.gov/
general/fcc-reference-informationcenter). To request materials in
accessible formats for people with
disabilities (Braille, large print,
electronic files, audio format), send an
email to fcc504@fcc.gov (mail to:
fcc504@fcc.gov) or call the FCC’s
Consumer and Governmental Affairs
Bureau at (202) 418–0530 (voice), (202)
418–0432 (TTY).
SUPPLEMENTARY INFORMATION:
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Synopsis
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I. Introduction
1. With this Report and Order, we
establish the requirements that will
govern the incubator program that the
Commission previously decided to
adopt to support the entry of new and
diverse voices into the broadcast
industry. Last year, the Commission
decided to adopt an incubator program
with the goal of creating ownership
opportunities for new entrants and
small businesses, thereby promoting
competition and diversity in the
broadcast industry. We recognize the
need for more innovative approaches to
encourage access to capital, as well as
technical, operational, and management
training, for those new entrants and
small businesses that, without
assistance, would not be able to own
broadcast stations. Thus, the incubator
program is designed with those specific
entities in mind—small businesses,
struggling station owners, and new
entrants that do not have any other
means to access the financial assistance
and operational support the incubator
program seeks to provide. In keeping
with that goal, the program
requirements we adopt today will
enable the pairing of small aspiring, or
struggling, broadcast station owners
with established broadcasters. These
incubation relationships will provide
new entrants and struggling small
broadcasters access to the financing,
mentoring, and industry connections
that are necessary for success in the
industry but to date have been
unavailable to many.
II. Background
2. The Commission has long
contemplated the potential for an
incubator program to provide new
sources of capital and support to entities
that may otherwise lack access to
financing or operational experience. In
concept, an incubator program seeks to
provide an established broadcaster with
an inducement in the form of an
ownership rule waiver or similar benefit
to invest the time, money, and resources
needed to facilitate broadcast station
ownership by new and diverse entrants.
An incubator program contemplates
that, in exchange for a defined benefit,
an established company could assist a
new owner by providing ‘‘management
or technical assistance, loan guarantees,
direct financial assistance through loans
or equity investments, training, or
business planning assistance.’’
3. Although the concept of an
incubator program has been discussed
since at least the early 1990s and has
received general support, the
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Commission had never undertaken the
creation of such a program, and
explicitly declined to adopt a program
as part of its 2010/2014 Quadrennial
Media Ownership Review. In late 2017,
however, the Commission reconsidered
that determination and at long last
decided to adopt an incubator program
to help address the lack of access to
capital and technical expertise faced by
potential new entrants and small
businesses. While the Commission
committed to initiating an incubator
program, it desired further input
regarding how best to structure and
implement a comprehensive program in
light of current market and regulatory
conditions. Accordingly, the NPRM
sought comment on eligibility criteria
for the incubated entity; appropriate
incubating activities; potential benefits
to the incubating entity; how such a
program would be reviewed, monitored,
and enforced; and the attendant costs
and benefits created. See 83 FR 774 (Jan.
8, 2018).
4. The record developed in this
proceeding presents a range of
thoughtful suggestions and
recommendations for the incubator
program. We are particularly grateful to
the Commission’s Advisory Committee
on Diversity and Digital Empowerment
(ACDDE) for the group’s extensive
consideration of the incubator program
and the elements that should define it.
The ACDDE working group members
devoted many hours to meetings and
review of empirical data before making
recommendations to the full committee
on how to structure the incubator
program. The resulting extensive
comments provided invaluable research
and proposals that the Commission has
carefully considered.
5. With this Report and Order, we
implement a long overdue mechanism
to address the primary barriers to station
ownership by new and diverse entities:
Lack of access to capital and the need
for technical and operational
experience. In implementing this
program, our expectation is that each
successful incubation relationship will
result in the acquisition of a broadcast
radio station by a new entrant or small
business, or the preservation of an
existing, but struggling, small
broadcaster. Accordingly, successful
implementation of the incubator
program we adopt today will promote
ownership diversity by fostering entry
into the broadcasting sector by
entrepreneurs and small businesses,
including those owned by women and
minorities.
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Services Eligible for Incubator Program
6. The incubator program we outline
today will apply to full-service AM and
FM radio broadcast stations, as we find
that the radio industry provides the best
opportunities for successful incubation
relationships and the best opportunity
for an appropriate reward. In the NPRM,
the Commission sought comment on
whether its incubator program should
be focused on radio, as the proposal was
initially conceived, or should apply to
television as well. The NPRM further
queried whether the Commission
should adopt a phased approach,
whereby the incubator program would
be implemented on a trial basis in radio
and then evaluated for possible
expansion to the television market.
Based on the record of this proceeding,
we find that the radio market has
several advantages over the television
market as an incubation setting.
7. Perhaps most importantly, the cost
of obtaining a radio station is
significantly lower than the cost of
obtaining a television station. Indeed,
the cost of acquiring a television station
is generally many times that of a radio
station. For example, in 2016 the
average sales price of a radio station on
the secondary market was
approximately $1 million, and the
average price of a television station was
$53 million. Due to their lack of
broadcasting experience and financial
collateral, new entrants and small
broadcasters often face significant
difficulties in accessing the capital
needed to purchase broadcast stations in
the secondary market or to participate in
Commission broadcast auctions for new
construction permits. Indeed, the record
reveals that access to capital is most
often the barrier to broadcast station
ownership. Furthermore, given the
larger numbers of radio stations in the
country (11,371 commercial, full-service
AM and FM stations) versus television
stations (1,377 commercial, full-service
stations), we find that radio is a more
accessible entry point than television. In
addition, the operating costs of running
a radio station are significantly lower
than those for operating a television
broadcast station. As a going concern,
radio is less cash flow intensive,
requires fewer personnel to operate, and
requires programming resources that are
less costly than those for television
stations. For these reasons, we find that
transitioning from a qualifying
incubation relationship to independent
ownership will be more feasible for
incubated entities in the radio service
than in television. Consequently, for
entities with already limited capital
resources and operational experience,
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we conclude that radio is a significantly
more accessible entry point into the
broadcasting industry than television.
7. We expect that implementing an
incubator program focused on the radio
market will also motivate the
participation of incumbent broadcasters,
who are key to the success of the
program, as they have the power to
ensure that the new entrants and small
businesses attracted to the radio
industry are able to acquire, operate,
and grow a broadcast station. As noted
above, we anticipate that the
inducement of a waiver of the
Commission’s Local Radio Ownership
Rule will provide sufficient incentive
for incumbent broadcasters to
participate in the program. That is, we
expect that radio station group owners
will seek to incubate a new entrant or
small broadcaster in order to obtain
permission to exceed the applicable
ownership limit in a market. In reaching
this conclusion, we note that the local
radio numerical limits and the AM/FM
service caps have remained unchanged
since they were prescribed by Congress
over 20 years ago in the
Telecommunications Act of 1996. Thus,
the existing Local Radio Ownership
Rule has restricted the ability of
incumbent broadcasters to grow larger
in any given market for over two
decades. In addition, Joint Sales
Agreements (JSAs) for greater than 15
percent of a station’s time remain
attributable in radio. Accordingly, given
the longstanding strictures remaining on
radio ownership, we believe a waiver of
the Local Radio Ownership Rule will
provide an effective incentive for
incumbent broadcasters to incubate
either new entities seeking entry into
the broadcasting industry or small
broadcasters.
8. By contrast, the Commission has
recently revised the rules governing
local television ownership, including
eliminating the attribution of television
JSAs; eliminating the eight voices test,
which required that at least eight
independently owned television
stations remain in the market after
combining ownership of two stations in
a market; and, adopting a hybrid
approach to application of the top-four
prohibition, permitting case-by-case
review of the restriction on ownership
of two top-four ranked stations in the
same market. In light of these changes
and the state of the record in this
proceeding as it pertains to television
station incubation, we do not believe
that it would be appropriate at this time
to offer a waiver of the Local Television
Ownership Rule as a reward for
incubating a television station.
However, we do not foreclose the
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possibility of reaching a different
conclusion following the completion of
our next quadrennial review depending
on the record that is compiled regarding
the local television marketplace in that
proceeding. Additionally, were
Congress to provide an alternative
benefit for incubating broadcasters, we
would be strongly inclined to expand
the program to include television
stations.
9. Based on our consideration of the
record and the current broadcast
marketplace, including the existing
broadcast ownership rules, we conclude
that an incubator program has the
greatest likelihood of success in the
radio industry. Although some
commenters, including NAB, advocate
for an incubator program for both radio
and television broadcast services, for the
reasons stated in this section, we
determine that the better approach at
this time is to focus our program on the
radio market. We note, however, that
the ‘‘leg up’’ provided to these new and
small broadcasters via the incubator
program, by allowing them to establish
a track record of successful station
ownership and providing them
increased access to capital, may
ultimately position them to add
television stations to their radio
holdings. For all the reasons provided
above, we determine that our initial
foray into the use of an incubator
program as a mechanism to increase
broadcast ownership diversity should be
limited to full-service radio. As we gain
more experience with the program and
assess evolving market and regulatory
trends in the television sector, we will
be able to analyze whether it is
appropriate to expand the program to
television.
Defining Entities Eligible for Incubation
10. In this section, we establish the
eligibility criteria governing which
entities may qualify for incubation
under our program. Our criteria consist
of both a numeric limit on the number
of stations a potential incubated entity
may own prior to entering into a
qualifying incubation relationship
(based on our existing new entrant
bidding credit), as well as a revenue cap
(based on our existing eligible entity
definition). Additionally, as discussed
below, we adopt certain safeguards to
ensure further that a potential incubated
entity genuinely lacks the necessary
resources that would have enabled it to
enter or succeed in the broadcast
industry absent the incubation
relationship. Finally, we also address
alternative eligibility criteria that were
proposed in our record.
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11. The NPRM sought comment on
how to determine eligibility for
participation in the incubator program
and put forth several options, including
the new entrant bidding credit model, a
revenue-based eligible entity standard, a
socially and economically
disadvantaged businesses (SDB) model,
and an Overcoming Disadvantages
Preference (ODP) standard. The NPRM
also sought comment on which of these
standards best aligns with the
Commission’s goal of facilitating
ownership opportunities for entities that
lack access to capital and operational
experience and, thereby, best promotes
competition and viewpoint diversity in
local markets.
12. The ultimate goal of the incubator
program is to encourage new entry into
the broadcast industry, an industry
which—as our record demonstrates—is
extremely capital-intensive. The
Commission has previously recognized,
and the record here confirms, that new
entrants and small businesses have had
longstanding difficulties accessing the
needed capital to participate in
broadcast ownership. For example,
Diane Sutter, President of ShootingStar
Inc., notes that ‘‘[t]he size of a deal is
extremely important to most banks.
Many entrants are limited to purchasing
smaller broadcast stations, given their
resources; however, banks often
consider it not worth the potential risk
to finance smaller deals for a new
owner.’’ For our incubator program to
redress the lack of access to capital, as
well as to facilitate operational,
managerial, and technical support, it is
critical that our eligibility criteria
properly identify those entities that are
most likely to benefit from program
participation and, thereby, increase
diversity in the broadcast sector.
13. After careful consideration of the
record in this proceeding and the
various standards discussed in the
NPRM, we adopt today a two-pronged
eligibility standard that combines a
modified version of the existing new
entrant bidding credit standard, long
used in the context of broadcast
auctions, with the revenue-based
eligible entity definition contained in
our broadcast rules. As detailed below,
under the first prong, the potential
incubated entity, including its
attributable interest holders, may hold
attributable interests in no more than
three full-service AM or FM radio
stations and no TV stations. The
ownership limit of three full-service
radio stations does not include the radio
station to be incubated. Under the
second prong of our standard, the entity
must also qualify as a small business
consistent with the SBA standards for
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the radio industry based on annual
revenue, currently $38.5 million or less.
14. New Entrant Prong. With respect
to the first prong of our standard, we
find that modifying the new entrant
eligibility standard for this purpose by
limiting permissible interests to three
full-service AM or FM radio broadcast
stations (licenses or unbuilt
construction permits) and no TV
stations will focus the program on
entities that are new or comparatively
new to the broadcasting industry (i.e.,
those with no existing broadcast
interests) and small broadcasters (i.e.,
those with three or fewer full-service
radio stations, and no TV stations). The
record reflects that individuals seeking
to purchase their first or second
broadcast station are the ones that often
face the most challenging financial
hurdles. Thus, the eligibility standard
we adopt today is targeted specifically
to benefit those small entities seeking to
enter the broadcast industry for the first
time and to help broadcasters with one,
two, or three radio stations to secure the
toehold they have obtained in the
industry. While we acknowledge that an
entity with interests in four or more
radio stations or a television station may
not necessarily be considered a large or
established broadcaster, we expect that
a broadcaster with such interests will
have more access to traditional
financing and capital resources
available, such that the resources
anticipated to flow through the
Commission’s incubator program would
not be as critical to their entry or
survival. Consequently, limiting the
eligibility criteria to those who have no
more than three radio stations
(consistent with the current new entrant
bidding credit rule’s limitation to ‘‘three
mass media facilities’’), and no TV
stations, best promotes the purposes of
the program.
15. Moreover, analyses of Commission
broadcast auctions data provided in the
record show that the new entrant
bidding credit—a modified version of
which we adopt herein—has increased
successful participation of small
businesses owned by women and
minorities in the auction of construction
permits for AM, FM, and TV stations.
NAB performed an analysis of the
Commission’s broadcast auctions data
and found that winning bidders relying
on the Commission’s new entrant
bidding credits were more likely to have
indicated that they were owned by
women and minorities than winning
bidders who did not use the credit.
NAB’s analysis focused on nine FM
broadcast auctions that utilized the new
entrant bidding credit. Its study
concluded that winning bidders relying
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on new entrant bidding credits were 93
percent more likely to be women, and
40 percent more likely to be minorities,
than winning bidders who did not use
the credit. In addition, NAB found that
collectively winning bidders using new
entrant bidding credits were 64 percent
more likely to be minorities or women
than other winning bidders.
16. We note that the ACDDE also
found that the use of the ‘‘new entrant’’
standard in auctions revealed a
statistically significant improvement in
female and minority participation after
its review of 20 FCC broadcast auctions,
more than twice the number evaluated
by NAB. The ACDDE determined that
these auctions attracted a total of 2,531
applicants, of which 1,681 were
determined to be qualified bidders. Of
the 1,681 qualified bidders, the ACDDE
found that (1) 1,457 were new entrants
(i.e., held three or fewer mass media
interests); (2) qualified minority new
entrants (12.4 percent) were more
prevalent than qualified minorityowned applicants who were not new
entrants (8.7 percent); and (3) qualified
women-owned new entrants (10.8
percent) were more prevalent than
qualified women-owned bidders who
were not new entrants (7.9 percent).
Based on this review, the ACDDE agrees
that, while not its preferred approach,
the new entrant definition ‘‘might have
some utility’’ as a means of determining
eligibility for participation in the
incubator program.
17. Commission staff also evaluated
data from a number of Commission
broadcast auctions conducted over the
past several years, and that data reveal
that the new entrant bidding credit has
increased successful participation of
small businesses owned by women and
minorities in the auction process for
AM, FM, and TV construction permits.
The Commission collects data on
information voluntarily filed by auction
participants utilizing FCC Form 175.
Staff analysis of auctions data for 20
auctions shows that of the 2,534 total
applicants for those auctions, 1,457 of
them, or 57.5 percent of the applicants,
indicated that they qualified for the new
entrant bidding credit. A total of 408
new entrant bidders were successful in
their auction. The percentage of
winning bidders that used a new entrant
bidding credit and identified as womenowned was three times larger (12
percent) than the percentage of bidders
that won without a new entrant bidding
credit and were women-owned (4
percent). Similarly, the percentage of
winning bidders that used a new entrant
bidding credit and identified as
minority-owned was almost three times
larger (14 percent) than the percentage
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of bidders that won without the new
entrant bidding credit and were
minority-owned (5 percent).
18. NAB’s and the ACDDE’s
evaluations of the Commission’s
broadcast auctions data, like the
Commission staff’s analysis, suggest that
the Commission’s use of the new entrant
bidding credit standard has been
effective in diversifying the pool of
successful bidders in the broadcast
auctions context. Our assessment
encompassed twice as many auctions as
those reviewed by NAB, and the overall
results of those evaluations were
similar—that the percentage of winning
bidders who used a new entrant bidding
credit and identified as either womenowned or minority-owned consistently
exceeded the percentage of winning
bidders who did not use a new entrant
bidding credit and were women-owned
or minority-owned. Thus, we expect
that use of a similar new entrant
eligibility standard will be an effective
means to diversify the applicant pool for
the incubator program, by targeting
those small broadcasters most in need of
the support provided by the incubator
program, including minority and female
applicants.
19. Small Business Prong. The second
prong of our eligibility standard requires
that incubated entities also qualify as
small businesses consistent with the
SBA standards for their industry
grouping, based on annual revenue,
currently $38.5 million or less for radio.
NAB supports use of a revenue-based
eligible entity standard in combination
with a new entrant standard. The
ACDDE objects to a revenue-based
standard standing alone, asserting that
this type of definition ‘‘has little or no
value in advancing ownership diversity
in the broadcast context.’’ We conclude,
however, that the revenue cap, in
conjunction with the first eligibility
prong as well as other safeguards
discussed herein, will assist in
identifying entities that are more likely
to be in need of incubation by
established broadcasters. The
combination of the new entrant
eligibility criteria and the small
business revenue standard will narrow
the scope of eligible applicants to those
applicants most in need of assistance
via our incubator program. In this way,
we expect to achieve our overarching
goal of increasing ownership diversity
by facilitating entry and developing
broadcast expertise amongst new and
small broadcasters.
20. After close review of the record,
we find that the eligibility standard set
forth above is the best means for
identifying incubated entities whose
lack of access to capital and operational
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experience has impeded their ability to
participate successfully in the broadcast
sector. We expect that pairing such
entities with established incumbent
broadcasters who can provide the
necessary capital, knowledge, and
operational support will ultimately
promote competition and viewpoint
diversity in local markets. The
combination of a numerical cap on
broadcast interests and a revenue
limitation will ensure that incubated
entities participating in the program are
truly new or small broadcasters.
21. Moreover, drawn from existing
Commission rules, the standard we
adopt today provides a clear, objective
metric that is familiar to broadcasters.
Use of an objective standard has the
advantage of being straightforward and
transparent for potential applicants, as
well as administrable for the
Commission without application of
significant additional processing
resources. Furthermore, unlike some of
the other proposals contained in the
record, because the new entrant bidding
credit standard is race and gender
neutral, it does not raise constitutional
concerns.
22. We decline to adopt an
Overcoming Disadvantage Preference
(ODP) standard. The ACDDE advocates
for such a standard, which it describes
as a ‘‘race-and-gender-neutral
preference’’ focused on the experiences
and efforts of an individual person that
affords a preference to those who
strived, through superior individual
efforts, to attempt to overcome major
impediments to success. According to
the ACDDE, ‘‘success or failure in
overcoming obstacles is not pertinent;’’
rather, what would matter is ‘‘effort, the
steps the person took to persevere.’’ We
note the concerns raised by NAB that a
standard such as ODP will require the
Commission to make subjective
decisions on the qualifications of
candidates proposed to be the incubated
entity, which could be time-consuming,
complex, and subject to disputes.
23. The Commission has previously
assessed ODP and articulated its
concern that the agency lacks the
resources to conduct the individualized
reviews recommended as a central
component of implementing ODP. In the
broadcast licensing context, the
Commission indicated that the type of
individualized consideration that would
be required under an ODP standard
could prove to be ‘‘administratively
inefficient, unduly resource intensive,
and inconsistent with First Amendment
values.’’ We do not find the ACDDE’s
current filing to have assuaged those
concerns. In the Part I Competitive
Bidding Rules proceeding, the
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Commission stated that ‘‘it is not clear
what proof should be required from
those individuals or entities seeking to
receive such a preference or how to
apply the ODP on a neutral basis. We
are also concerned that our review of
such a claim would involve a costly and
lengthy process.’’ While the ACDDE did
offer suggestions for the administration
of an ODP standard, the standard
remains inherently subjective and, we
believe, inappropriate for the broadcast
licensing context. Consequently, we
affirm our earlier decisions regarding
the administrative infeasibility of an
ODP standard. For all of the reasons
stated above, we decline to implement
an ODP standard for the incubator
program.
24. In addition to advocating for the
use of ODP as the eligibility standard,
the ACDDE also proposes that ‘‘missionbased entities’’ and Native American
Nations be automatically presumed to
be eligible for incubation. Although the
ACDDE’s incubator proposal and the
benefits that it would provide
incubators—namely the award of tax
certificates for stations donated to a
mission-based entity or Native
American Nation—are not the same as
the incentives that we adopt today, we
share the ACDDE’s goal of including
diverse participants in our incubator
program. We encourage them to apply
and establish clearly in their certified
supplemental statements how their
participation in the incubator program
is consistent with the goals of the
program. We recognize that, unlike
small, aspiring, and struggling
broadcasters, many mission-based
entities and Native American Nations
have broader missions that encompass
much more than broadcasting and thus
these entities may be less likely to learn
of our incubator program absent
education and outreach by the
Commission. Therefore, the
Commission will conduct outreach to
help encourage participation in the
incubator program by mission-based
entities and Native American Nations
that meet the program’s eligibility
requirements. We decline, however, to
adopt the proposed automatic
presumption of eligibility.
25. Safeguards Associated with
Eligibility Standard. We recognize that
the ACDDE has raised concerns about
the potential for abuse of an eligibility
standard based on the Commission’s
new entrant bidding credit. In
particular, the ACDDE references the
Commission’s comparative broadcast
hearings, long since discontinued, in
which the ACDDE asserts spousal and
parent-child relationships were used to
‘‘game the system and defeat minority
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new entrants.’’ The ACDDE
acknowledges, however, that the new
entrant definition might be useful in
promoting minority and female
broadcast ownership if the Commission
were able to address these ‘‘legacy
applicant’’ concerns.
26. To address such concerns, we
adopt certain safeguards in conjunction
with our two-pronged eligibility
standard. As part of the application
process, which is described in greater
detail below, potential incubated
entities must demonstrate that they have
met both the numeric and revenue
limitation for the preceding three years.
Thus, an entity must not only comply
with the eligibility standard at the time
it applies to participate in a qualifying
incubation relationship, but also for the
three years prior to its application. NAB
proposed a one-year certification period,
which would require that applicants
certify that, for the year prior to
applying for participation in the
incubator program, they have met the
applicable eligibility standards in terms
of the number of stations owned. Such
a certification would, in NAB’s view,
help to discourage any potential
manipulation of the program by
applicants who dispose of financial
interests in additional broadcast
properties prior to applying for
participation in the incubator program.
NAB further proposes that program
applicants be required to certify
compliance with any revenue eligibility
standards that are adopted. We concur
with NAB that a certification
requirement will safeguard our
eligibility concerns; however, we find
that a longer 3-year period is more likely
to deter any fraud or manipulation than
a shorter timeframe.
27. In addition, as part of the
incubator program application process,
we will require a potential incubated
entity to include in its application a
certified statement attesting that it
would be unable to acquire a station, or
continue to operate successfully a
station proposed for incubation that it
already owns, absent the proposed
incubation relationship and the funding,
support, or training provided thereby.
The Commission, in its discretion, may
investigate the accuracy of the
certification if it is made aware of
information that suggests that the
potential incubated entity does not, in
fact, need the incubation relationship to
purchase and operate a broadcast radio
station. All applicants will further be
required to detail any attributable
interests in broadcast stations held by
family members pursuant to FCC Forms
301, 314, and 315, thereby revealing any
familial or spousal relations as part of
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the application process. If at any point
the Commission determines that the
certified statement contained
misrepresentations, both the incubated
and incubating entities may suffer
negative consequences. Pursuant to the
Commission’s Character Policy
Statement, we would examine the
qualifications of both parties to hold or
retain broadcast licenses.
28. The incubator program is designed
to assist those new or small broadcasters
who do not have access to the necessary
capital or technical expertise absent a
qualifying incubation relationship.
Thus, an individual who provides
evidence of a meager bank account and
attests to limited resources might
subsequently be disqualified from the
program, while also being subject to any
penalties associated with making
misrepresentations to a federal agency,
if it is later determined that this
individual also had access to a large
personal trust fund designed to assist
him or her in business ventures.
Likewise, the incubating entity affiliated
with this incubation relationship may
find its reward waiver withheld or
revoked, depending on whether it knew,
or should reasonably have known, about
the incubated individual’s access to
such a trust fund or other assets. We
expect that the possibility of negative
consequences for both the incubated
and incubating entities for any
misrepresentations regarding the
incubated entity’s need for the program
should serve as a sufficient deterrent
against such behavior.
Qualifying Incubation Relationships
29. In this section, we adopt
requirements for qualifying incubation
relationships. As discussed below, we
will require that qualifying incubation
relationships provide the incubated
entity with the financial and operational
support it lacks (including management
training), that such relationships
include an option for the incubated
entity to purchase the incubating
entity’s equity interest in the incubated
station and/or terminate the incubating
entity’s creditor-debtor relationship
with the incubated entity, and that the
standard time period for such
relationships be three years, with the
option to extend for up to another three
years. We also adopt certain safeguards
to ensure that the incubated entity
retains control of the incubated station.
30. The NPRM sought comment on
the combination of activities that should
be required to qualify as incubation and
whether there should be any conditions
or limitations on the financial and
operational aspects of a qualifying
incubation relationship. Noting that
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proponents had previously proposed
that an incubator program include
management or technical assistance,
loan guarantees, direct financial
assistance through loans or equity
investment, training, and business
planning assistance, the NPRM asked
whether the program should also
include other activities, such as
donating stations to certain
organizations or arrangements whereby
a new entrant gains operational
experience without first acquiring a
station (e.g., pursuant to a Local
Marketing Agreement (LMA)). In
addition, the NPRM asked what
additional safeguards the Commission
should include in order to ensure that
the incubated station licensee retains
control of its station. We conclude that
qualifying incubation relationships are
those in which an experienced AM or
FM broadcaster provides an eligible new
or small broadcaster with support that it
cannot obtain on its own and that is
essential to its ability to independently
own and operate a full-service AM or
FM station. We expect qualifying
incubation relationships to provide the
incubated entity with financial and
operational support (including
management training) that it needs and
that will ultimately enable the
incubated entity to own and operate
independently either the incubated fullservice AM or FM station or another
full-service AM or FM station acquired
at the completion of the program. We
allow parties the flexibility to tailor
each proposed incubation relationship
to the specific needs of the incubated
entity while adopting certain safeguards
to ensure that the incubated entity
retains full control of the incubated
station.
31. Financial and Operational
Support. Commenters that support an
incubator program agree that the
incubating entity should provide the
financial and operational support that
the incubated entity needs and that the
parties should have flexibility to
determine the specific combination of
elements needed to support the
incubated station according to its
particular circumstances. Requiring the
incubating entity to provide the
financial and operational support that
the incubated entity needs is consistent
with the goal of the incubator program,
which is to help address the lack of
access to capital and operational
expertise faced by potential new
entrants and small businesses, as
discussed above. The record also
indicates, however, that there may be
some benefit to requiring an incubated
entity to make a financial contribution
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to the incubation relationship to solidify
its own commitment towards the
endeavor.
32. Rather than dictate specific
minimums for the financial and/or
operational support that an incubating
entity must provide, we conclude that
the better approach is to give parties the
flexibility to tailor an incubation plan to
the needs of the incubated entity, the
realities of the marketplace, and the
needs of the community in which the
incubated station operates. For example,
an incubated entity that already owns
and operates an AM or FM station will
likely need less financial and
operational support than a first-time
owner of a broadcast station. Similarly,
an incubated entity that has previously
programmed a station and sold
advertising time will likely need less
operational support than a new owner
with less experience. Thus, the financial
and operational needs of each incubated
entity will likely differ depending on
how much experience it has in
broadcasting and its other assets. It is
possible that in some cases, an
incubated entity will just need one form
of support or the other—i.e., financial or
operational. For instance, if a
broadcaster donates a station to a
mission-based entity, as suggested by
the ACDDE, the broadcaster may not
necessarily need to provide any
additional financing to fund the
incubation activities. Nevertheless, a
broadcaster that chooses to incubate in
this manner would still be required to
provide the incubated station with
operational support, as discussed
herein, to enable the mission-based
entity to operate the station
independently in the long term.
33. These are just a few examples of
how the specific financial and
operational needs of an incubated entity
may differ depending on the
circumstances. We emphasize that
qualifying incubation relationships
must provide an incubated entity with
the level of support needed to enable
the incubated entity to own and operate
a full-service AM or FM station
independently at the conclusion of the
qualifying incubation relationship.
Depending on the needs of the
incubated entity, a qualifying
incubation relationship will likely
provide or guarantee a substantial share
of the financing needed to acquire the
incubated full-service AM or FM station
and operate it effectively. The
incubation relationship must ensure
that the incubated entity has sufficient
financial resources to hire enough
employees to oversee the operation of
the station, acquire and produce station
programming, acquire and maintain
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station equipment and facilities, etc.
While the incubating entity may often
provide the bulk of the financial
resources, we do expect the incubated
entity to contribute a substantial amount
of funding to support the incubated
station. We find that requiring the
incubated entity to assume some of the
financial risk by making a meaningful
financial contribution to the incubation
relationship will provide further
assurance of the incubated entity’s
commitment to the success of the
relationship. Consequently, as discussed
below, we require the incubated entity
to hold a minimum equity interest in
the incubated station consistent with
the control test contained in our existing
revenue-based eligible entity definition.
34. For operational support, a
qualifying incubation relationship will
likely also provide operational
assistance and intensive training in the
following areas: Engineering/technical
operations, office support, sales,
programming, and management,
including business planning, finances,
and administration. These areas of
operational support encompass those
that commenters have proposed and
that proponents have traditionally
conceived of as part of a comprehensive
incubator program.
35. The specific components of a
qualifying incubation relationship may
vary based on the amount of industry
experience an incubated entity has
previously obtained, the incubating
entity’s existing resources, and the
specific needs of the station to be
incubated. Parties may be able to
demonstrate that an incubated entity
already has significant experience in
some of the areas listed above and that
a qualifying incubation relationship for
that entity requires fewer components.
Regardless of which of these specific
components are included in a particular
incubation relationship, the support
required by a qualifying incubation
relationship must ultimately enable the
incubated entity to own and operate
independently either the incubated
station or another full-service AM or FM
station at the conclusion of the
incubation relationship. We expect that
an incubation relationship where both
parties have established a plan for the
incubated entity to own and operate
independently either the incubated
station or a newly acquired full-service
AM or FM station at the end of the
incubation relationship, with progress
indicators identified as part of a contract
between the parties, holds the greatest
likelihood of success. As discussed
below, after the second year of
incubation we will not allow any
brokering or sharing arrangements
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involving the incubated station to
ensure that the incubated entity
demonstrates its ability to operate the
incubated station independently prior to
the end of the relationship.
36. Option to Buy Out Incubating
Entity or Obtain Assistance in Acquiring
a New Station. We agree with the
ACDDE’s proposal that qualifying
incubation relationships must include
an option that provides the incubated
entity with the right, but not the
obligation, to purchase the incubating
entity’s equity interest in the incubated
station, if it holds one. The price and
terms of this buy-out option must be
commercially reasonable and must not
strongly favor the incubating entity, and
the purchase price must not exceed the
station’s fair market value. The fair
market value must be determined
through customary valuation methods
that rely on audited financial statements
prepared by a certified public
accountant, real estate appraisals, and
other information such as market size,
total radio dollars available marketwide, market growth, market
competition, and the potential for signal
upgrades, to the extent such information
is relevant to determining the fair
market value of the station. At the end
of the qualifying incubation
relationship, the incubated entity may
decide not to exercise this option and
choose instead to retain its existing
controlling interest in the incubated
station. Alternatively, the incubated
entity may choose to sell its interest in
the incubated station and use the
proceeds from sale to acquire another
full-service AM or FM station. In that
case, we expect the incubating entity to
help the incubated entity identify a fullservice AM or FM station to buy and
obtain the financing necessary to
purchase the station. Absent a showing
at the end of the qualifying incubation
relationship that the incubated entity
holds a controlling interest in the
incubated station or a newly acquired
full-service AM or FM station, the
incubating entity will not be eligible to
receive a waiver of the Local Radio
Ownership Rule.
37. By requiring an option as
described in the preceding paragraph,
we ensure that, before the incubating
entity is eligible to receive a waiver, the
incubated entity has acquired
independent ownership of a full-service
AM or FM station, consistent with our
program goal of introducing new,
independent broadcasters to the
industry. Because our approach will
provide multiple paths for an incubated
entity to achieve the goal of
independent station ownership, we
conclude that our approach will not
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unduly direct or limit the incubated
entity’s activities following its
participation in the program, thereby
preserving options as NAB suggests.
38. Duration of Qualifying Incubation
Relationships. We agree with the
ACDDE that in most cases a three-year
incubation period will provide enough
time for an incubated entity to develop
the skills and expertise needed to be
able to own and operate a broadcast
station independently. NAB offers a
similar recommendation, stating that
broadcasters’ experience in this arena
suggests that the term of an incubation
relationship should be no less than
three years but that an incubated entity
may need additional time to obtain the
necessary funds or expertise to be selfsufficient, or that an extension may be
needed due to marketplace or financing
conditions. While we agree that an
incubated entity may need more than
three years to develop the requisite
operational expertise or secure the
financing needed to be self-sufficient,
we believe we must adopt a maximum
time limit of six years for qualifying
incubation relationships so that the
incubated entity has an incentive to
develop the skills and expertise needed
to operate a full-service AM or FM
station independently.
39. As the ACDDE notes, there may
also be instances in which an incubated
entity makes exceptional progress
towards becoming an independent
owner and operator of the incubated
station and seeks to acquire full equity
ownership and independent control of
the incubated station before the
incubation term ends. In such
circumstances, we will consider
granting requests from parties seeking to
conclude their incubation relationship
before the end of the term.
40. Accordingly, we will require that
the incubation agreement provide that
the parties must perform the incubation
activities for three years, although the
parties may jointly seek to conclude
their incubation relationship early or
request a one-time extension of an
additional three years or less, depending
on need, upon a showing of good cause.
The three-year time period will begin on
the effective date of the incubation
contract. Extension requests must be
submitted before the initial term
expires. We direct the Media Bureau
(Bureau) to find good cause to grant an
extension where (1) the parties need
additional time to incubate the fullservice AM or FM station as discussed
below, or (2) the parties need more time
to identify a full-service AM or FM
station for the incubated entity to
acquire or additional time for the
incubated entity to close on the pending
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acquisition of a full-service AM or FM
station. The parties to the incubation
contract must demonstrate that by the
end of the extended term they will have
resolved the issues that resulted in the
need for more time and that the
incubated entity will be able to own a
full-service AM or FM station and have
demonstrated its ability to operate such
a station independently. Unless
otherwise specified by the parties and
approved by the Commission, the terms
of the initial incubation contract will
govern the incubation relationship
during any Commission-approved
extension period.
41. Independence of Incubated Entity.
The incubator program is designed to
provide a ‘‘hands on’’ learning process
in which the incubated entity learns by
‘‘doing’’ with the benefit of a mentor. To
ensure that the incubated entity derives
the maximum benefit from the training
and mentoring provided by the
incubating entity, we require that the
incubated entity be the licensee of the
incubated station and maintain ultimate
authority over station personnel,
programming, and finances. It is by
engaging in station management
activities independently that the
incubated entity will best develop its
skills. As NAB notes, ‘‘this level of
independence is essential to promoting
the new entrant’s business growth and
experience.’’ Indeed, the goals of the
incubator program, including
encouraging new and diverse ownership
of broadcast stations, require that we
adopt safeguards to ensure that the
incubated entity retains control of the
incubated station and remains
independent of the incubating entity
and thus develops the skills necessary
to own and operate the station
independently. While the incubating
entity will devote considerable
financial, operational, managerial, and
technical resources during the
incubation relationship, the incubated
entity must retain control of the
incubated station and remain
independent of the incubating entity to
ensure it derives the full measure of
intended benefits, in the form of ‘‘hands
on’’ learning, during the entire
incubation relationship.
42. Below, we adopt certain
safeguards to ensure that the incubated
entity has the requisite level of
autonomy during the incubation
relationship. As a threshold matter, we
require the incubated entity to satisfy a
control test as discussed below,
consistent with our revenue-based
eligible entity definition. In addition,
we place limits on the use of brokering
and sharing arrangements. We agree
with the ACDDE that JSAs and shared
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service agreements (SSAs) may be used
only to assist in, and must not be used
to substitute for, incubation. Finally,
both to promote the incubated entity’s
autonomy and to guard from potential
conflicts of interest, we place limits on
the ability of individuals to take on
management or oversight positions in
both the incubating entity and
incubated entity.
43. First, we require the incubated
entity to satisfy the following control
test consistent with our existing
revenue-based eligible entity definition,
upon which we are basing the second
prong of the eligibility standard for our
incubator program as discussed above.
Specifically, we require that the
incubated entity hold more than 50
percent of the voting power of the
licensee of the incubated station, and if
the licensee is not a publicly traded
company (which will almost assuredly
be the case), a minimum of either 15
percent or 30 percent of the equity
interests, depending on whether
someone else owns or controls more
than 25 percent of the equity interests.
Both the ACDDE and NAB agree that the
incubated entity must hold more than
50 percent of the voting power to
control the incubated station. The
ACDDE, however, also calls for the
incubated entity to hold a minimum
equity interest of 20 percent. Veteran
broadcaster Skip Finley proposes that
the Commission limit the investment of
the incubating entity to 25 percent,
which he argues would not permit
control or, standing alone, create an
attributable ownership interest. We
conclude that applying the control test
in our existing eligible entity rule will
best ensure that the incubated entity
retains control of the incubated station
while still giving the parties some
flexibility to establish incubation
relationships that suit their specific
needs. Also, as noted above, we find
that it is important for the incubated
entity to have some minimum ‘‘skin in
the game’’ as a sign of its commitment
to the success of the incubation
relationship. In this regard, we find that
the minimum equity holding
requirements of the control test
contained in the revenue-based eligible
entity definition are appropriate. Using
these existing requirements should
facilitate both participation in and
administration of the incubator
program, as the requirements are
already familiar to licensees. Hence, as
discussed more fully below, all
incubation applications must
demonstrate that control will rest with
the incubated entity and that the
incubated entity meets the requisite
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minimum holding level discussed
herein.
44. We remind parties that our rules
prohibit unauthorized transfers of
control, including de facto transfers of
control. Thus, even if the incubated
entity has a controlling interest in the
incubated station, we will also look to
whether the incubated entity maintains
control over the station’s core
operations, including programming,
personnel, and finances, when
addressing questions relating to control.
45. To ensure that the incubated
entity retains autonomy over the
incubated station’s core operating
functions so as to gain the necessary
level of operational expertise, and in
light of concerns raised by the ACDDE
and REC Networks, we place certain
restrictions on the use of LMAs, JSAs,
and SSAs. Our current attribution
standards recognize that same-market
radio LMAs and JSAs above a certain
percentage of the station’s broadcast day
may confer on the brokering station the
potential to exert a significant degree of
influence over core station operating
functions (i.e., programming decisions).
Specifically, our attribution standards
regard as attributable ownership
interests same-market radio LMAs and
JSAs in which the brokering station
brokers more than 15 percent of the
broadcast time or sells more than 15
percent of the advertising time per
week. Given our rationale for attributing
these arrangements and the concerns
raised in the record of this proceeding,
we adopt the following safeguards.
46. First, to ensure that the incubated
entity retains control of the
programming aired on the incubated
station, we prohibit LMAs involving the
incubated station. As defined in our
rules, an LMA is any agreement that
involves ‘‘the sale by a licensee of
discrete blocks of time to a ‘broker’ that
supplies the programming to fill that
time and sells the commercial spot
announcements in it,’’ regardless of how
the agreement is titled. Second, to
ensure that the incubated entity is able
to gain operational expertise by
performing the core operations of the
incubated station, we limit any JSAs or
SSAs involving the incubated station to
the first two years of the initial
incubation period. Pursuant to the
definitions in our rules, we consider a
JSA to be any agreement with the
licensee of a brokered station that
authorizes a broker to sell advertising
time for the brokered station, and we
consider an SSA to be any agreement or
series of agreements in which (i) a
station provides any station-related
services to a station that is not directly
or indirectly under common de jure
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control permitted under the
Commission’s regulations, or (ii)
stations that are not directly or
indirectly under common de jure
control permitted under the
Commission’s regulations collaborate to
provide or enable the provision of
station-related services. While our
attribution standards do not regard
SSAs as attributable ownership
interests, we are concerned that
allowing these arrangements to be used
for the full duration of an incubation
relationship could deprive the
incubated entity of its incentive to gain
the operational expertise needed to
operate the station independently at the
end of the relationship. Permitting
limited use of JSAs and SSAs
appropriately balances broadcasters’
representations that these arrangements
can make incubation more successful
with the need to ensure that each
incubated entity learns how to perform
essential station functions
independently in order to be viable in
the long term as an independent
broadcaster. We do not believe that
prohibiting LMAs and restricting the
use of JSAs and SSAs will reduce the
utility of our program for incubated
entities, as the record and our
experience indicate that new owners of
radio stations need assistance primarily
with financing and technical issues,
rather than programming and
advertising sales.
47. Moreover, these safeguards will
enable the parties to evaluate whether
the incubated entity is prepared to
operate independently before the
incubation period has ended and while
the incubating entity remains
contractually obligated to provide
support. By requiring that the incubated
entity actually obtain or produce
programming, sell advertising, and
perform other core operating functions
for the incubated station for at least one
full year prior to the expiration of the
incubation relationship, these
protections will provide for a more
informed assessment of the incubated
entity’s progress and any areas where it
needs additional training and support to
be viable as an independent owner and
operator of the incubated station or
another full-service AM or FM station.
The incubated entity’s experience
performing core operating functions
may provide a persuasive justification
for extending the incubation
relationship if the parties determine that
more time is needed to incubate the
station; thus, we are likely to rely on the
parties’ assessment that an extension of
the incubation relationship is needed.
While we are allowing limited use of
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JSAs and SSAs, we emphasize that these
agreements, if used, must be
accompanied by proper training in the
relevant area(s)—e.g., administrative,
technical, sales, etc.—covered by any
such arrangement(s) involving the
incubated station.
48. Finally, we require that none of
the officers, directors, managing
partners, or managing members of the
incubated entity hold an attributable
interest in or be an employee of the
incubating entity. We are concerned that
allowing an employee or an attributable
interest holder of the incubating entity
to serve as an officer, director, managing
partner, or managing member of the
incubated entity may jeopardize the
independence of the incubated station
given the significant conflicts of
interests that could arise for these
individuals and the significant authority
and potential for influence they would
wield over the incubated station. While
U.S. antitrust laws prohibit, with certain
exceptions, one individual from serving
as an officer or director of two
competing corporations, we believe that
an additional safeguard is needed to
address circumstances that may be
exempt from or not covered by the
antitrust laws, such as where the two
companies are not competitors, where
either company is not a corporation or
does not meet certain financial
thresholds, or where an officer or
director of one company is an employee
but not an officer or director of the other
company. We note that NAB and MMTC
previously stated that the incubating
entity and the incubated entity should
not share common officers or directors.
As discussed above, we believe that an
even stronger safeguard is necessary to
ensure the independence of the
incubated station.
49. Limitations on Incubation
Relationships Per Market. We will allow
each incubating entity to incubate no
more than one station per market, as
defined for purposes of determining
compliance with the Local Radio
Ownership Rule. This will help ensure
that the benefits that flow from our
incubator program reach multiple
markets and that our program is not
used to restrict the limited number of
local broadcast radio channels to one or
a few radio station owners. While an
established broadcaster that is already
in an approved incubation relationship
may not concurrently incubate multiple
stations in the same market, the
incubating broadcaster may apply to
incubate a different station in another
market. Consistent with the
certifications and other requirements
discussed herein, the established
broadcaster would need to demonstrate
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that it will provide the resources
necessary to incubate the additional
station(s). Moreover, a prospective
incubating entity may seek to incubate
a station in a market where there is
already an ongoing incubation
relationship involving a different station
if the prospective incubating entity is
not a party to or participant in that
ongoing relationship.
Benefit To Incubating Entity
50. In this section, we discuss the
benefit that an established broadcaster
will be eligible to receive for
successfully completing a qualifying
incubation relationship, namely a
waiver of the Local Radio Ownership
Rule. We discuss below the terms
associated with the waiver and the
standard for granting such a waiver.
51. Acknowledging that proponents of
a broadcast incubator program have
previously suggested that incubating
entities receive a waiver of our local
broadcast ownership rules in exchange
for participating in an incubator
program, the NPRM sought comment on
how to structure the waiver element or
other appropriate incentive. In
particular, the NPRM sought comment
on whether the waiver should allow the
incubating entity to obtain an otherwise
impermissible non-controlling,
attributable interest in the incubated
station or to acquire a different station
in the same market or any similarly
sized market. Among other things, the
NPRM also sought comment on whether
a waiver should be tied to the success
of the incubation relationship, whether
the waiver should continue when the
incubator program ends, and whether
the waiver should be transferrable if the
incubating entity sells a cluster of
stations that does not comply with the
ownership limits at the time.
52. Why a Reward Waiver as Opposed
to Another Type of Benefit. We
conclude that our incubator program
must provide a meaningful economic
incentive in order to encourage
established broadcasters to commit the
substantial financial and other resources
needed to incubate a new entrant
successfully as discussed below. We
recognize that, without active
participation by incumbent
broadcasters, any incubator program we
design will be doomed to fail. Both
supporters and opponents of an
incubator program agree that a strong
incentive is needed to entice
prospective incubating entities. Indeed,
the ACDDE states that an important goal
of the incubator program is to create a
sufficient incentive for established
broadcasters to incubate new entrants,
allowing established broadcasters to
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grow their businesses while sharing
with others the opportunities they may
have enjoyed earlier in their careers.
53. There is, however, a divergence of
views over what would be the best
incentive. According to the
broadcasters, a waiver of the local
broadcast ownership rules is the
appropriate incentive. The ACDDE, on
the other hand, advocates for two forms
of tax relief: A tax certificate entitling
the incubating entity to defer capital
gains taxes on the sale of its interest in
the incubated station upon reinvestment
in a comparable property, and a tax
credit of an amount equal to the
appraised fair market value of the
station if the incubating entity donates
the station to a mission-based entity or
a Native American Nation. REC
Networks proposes a regulatory fee
exemption.
54. We conclude that allowing an
incubating entity to seek a waiver of the
Local Radio Ownership Rule, including
the AM/FM subcap (reward waiver), in
exchange for successfully completing a
qualifying incubation relationship will
provide a meaningful economic
incentive to established broadcasters
and thereby encourage them to incubate
a new entrant. Those broadcasters who
have the experience and resources
needed to incubate a new or small
broadcaster successfully are likely to be
longtime station group owners that may
be at or near the local ownership limits
in one or more markets. Consequently,
based on the record in this proceeding,
we expect that a waiver of the Local
Radio Ownership Rule will be
sufficiently attractive to these
prospective incubating entities to entice
them to participate in the incubator
program. While some commenters assert
that granting waivers of local ownership
rules to incubating entities could harm
rather than promote ownership
diversity, we find that the record
demonstrates a waiver of the Local
Radio Ownership Rule is the benefit
within our authority that will best
provide a sufficient incentive for
established broadcasters to participate
in our incubator program. In
establishing requirements for the use of
reward waivers under our incubator
program for full-service AM and FM
stations, we balance our goal of
preserving our local radio ownership
limits with the need to provide enough
flexibility to foster participation in our
program by incubating entities. We
conclude that the requirements we
adopt herein regarding the use of reward
waivers will help ensure that they do
not work against our local radio
ownership limits and that our incubator
program preserves a market structure
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that facilitates and encourages new
entry into the local media market, as
discussed below.
55. We decline to rely on regulatory
fee exemptions or tax incentives to
encourage participation in our incubator
program. With regard to a regulatory fee
exemption, we agree with the 22
ACDDE Members who filed reply
comments that a six-to-twelve-month
exemption of this sort would not
provide a sufficient incentive for
established broadcasters to incubate
new entrants. In addition, we note that
the Commission has previously found
that it does not have the authority to
waive or defer fees categorically.
56. As for tax certificates and tax
credits, we agree that they can provide
an incentive for established broadcasters
to enter qualifying incubation
relationships and that some believe tax
certificates have been successful in the
past in bringing new and diverse
entrants to the broadcasting industry,
but we are unable to use such measures
to encourage participation in our
incubator program absent authorization
from Congress. Since the prior tax
certificate program was eliminated in
1995, supporters have from time to time
advocated for the return of the program.
Indeed, the Commission itself has
previously supported the effort to
reinstate tax certificates as a means for
increasing ownership diversity. To date,
however, those efforts have been
unavailing. Thus, rather than
indefinitely delaying implementation of
an incubator program pending
Congressional introduction and passage
of the necessary tax legislation, we find
that it is in the public interest to
proceed with the program we
implement today, which will provide a
meaningful incentive for established
broadcasters to incubate new entrants
that genuinely need financial and/or
operational support to become
independent owners. Of course,
following our action today, Congress
would be able to adopt legislation either
authorizing or mandating the use of tax
certificates and tax credits in our
incubator program, either in addition to
or in lieu of reward waivers, should it
so choose.
57. Timing and Duration of Reward
Waiver. The reward waiver will be
available to the incubating entity after
the successful completion of a
qualifying incubation relationship. The
process for determining whether an
incubation relationship has been
successful is described more fully
below. While NAB proposes that the
reward waiver be available to the
incubating entity prior to the end of the
incubation relationship, we believe that
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an incubating entity will have a much
stronger incentive to cultivate the
incubated entity as an independent
broadcaster if the reward waiver is
available to the incubating entity only
after it successfully completes the
qualifying incubation relationship. To
use its reward waiver, the incubating
entity must seek to acquire a full-service
AM or FM station and file the waiver
request within three years after the
successful conclusion of the qualifying
incubation relationship. We believe it is
necessary to require that each reward
waiver be used in proximity to the
associated incubation relationship in
order to aid our tracking and
recordkeeping, and so the Commission
is able to consider the availability of
such benefits in the context of
ownership rules and competition in
radio markets close in time to when the
incubation relationship occurs. We also
believe that the incubating entity will
have every incentive to acquire a fullservice AM or FM station using the
reward waiver as quickly as possible
following the successful conclusion of
the qualifying incubation relationship.
Therefore, we reject NAB’s assertion
that an unused reward waiver should
not expire.
58. We do, however, recognize that
retaining the value of a station cluster
that includes a reward waiver is an
important part of the benefit afforded to
an incubating entity. Consequently, as
long as the cluster that is initially
formed using the reward waiver is
transferred intact, we will permit the
waiver to be transferred with the station
group. Permitting transfer of the initial
cluster preserves any increase in value
achieved by the incubating entity for its
efforts in bringing a new broadcaster
into the market. We do not, however,
permit the waiver to move separately
from the station cluster, as we also seek
to ensure that those who have not
advanced diversity via participation in
the program do not receive a windfall.
Consequently, the waiver will continue
in effect as long as the cluster remains
intact. Further, a single party may not
hold the benefit of more than one
waiver in a market granted under our
incubation program, meaning that a
station cluster that exceeds the
applicable ownership rule by virtue of
an incubation reward waiver may not be
transferred to an entity that already
holds such a waiver in the market. In
addition, we will permit the incubating
entity to use its reward waiver to engage
in an in-market station swap, which will
not impact ownership diversity in the
market or allow a broadcaster to obtain
a reward waiver without making a
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countervailing contribution to
ownership diversity.
59. Markets Where Reward Waiver
May Be Used. We will allow an
incubating entity to use a reward waiver
to acquire an otherwise impermissible
attributable interest to: (i) Purchase a
full-service AM or FM station located in
the same market as the incubated
station, (ii) purchase a full-service AM
or FM station located in a market that
is comparable to the market in which
the incubation occurred, as defined
below, or (iii) if the incubated entity
chooses not to exercise its option to
purchase the incubating entity’s noncontrolling interest in the incubated
station, to retain an otherwise
impermissible attributable interest in
the incubated station after the
incubation relationship ends (including
acquiring a controlling interest in the
incubated station if the incubated entity
acquires a controlling interest in another
full-service AM or FM station). An
incubating entity that uses a reward
waiver in a comparable market may also
choose to retain its non-controlling
attributable interest in the incubated
station if permitted by our ownership
rules. Commenters that support the use
of waivers in our incubator program
agree that we should allow an
incubating entity to use a reward waiver
in a market other than the incubation
market, and we believe this will expand
opportunities for incubation by not
limiting participants only to markets
where the incubating entity is at or near
the applicable local radio ownership
limits. To preserve competition in even
the smallest markets, however, we will
not allow an incubating entity to use a
reward waiver in a market where the
waiver would result in the incubating
entity holding attributable interests in
more than 50 percent of the full-service,
commercial and noncommercial radio
stations in a market. Thus, consistent
with our existing Local Radio
Ownership Rule, an incubating entity
will not be able to hold an attributable
interest in more than 50 percent of the
full-service, commercial and
noncommercial radio stations in a
market unless the combination of
stations comprises not more than one
AM and one FM station. Given our
decision to allow a reward waiver to be
used only if the incubating entity will
not hold an attributable interest in more
than 50 percent of the full-service,
commercial and noncommercial radio
stations in a market, we do not think it
is necessary to adopt a cap on the inmarket revenue share of station
combinations resulting from the use of
a reward waiver as one commenter
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proposes. We believe that a cap on the
in-market revenue share of station
combinations, which is more likely to
change from year to year, would not be
as effective as a cap on the share of
stations that an incubating entity may
own in a reward market.
60. We will consider a market to be
‘‘comparable’’ to the market where the
incubation relationship occurred if, at
the time the incubating entity seeks to
use the reward waiver, the chosen
market and the incubated market fall
within the same market size tier under
our Local Radio Ownership Rule and
the number of independent owners of
full-service, commercial and
noncommercial radio stations in the
chosen market is no fewer than the
number of such owners that were in the
incubation market at the time the parties
submitted their incubation proposal to
the Commission. Restricting an
incubating entity that uses a reward
waiver to purchase a station in another
market to a comparable market will help
ensure that the local impact of the
reward waiver on the number of
independent owners is similar to that of
the incubated station in its market.
Thus, it balances our desire to limit the
impact of any potential consolidation
that could result from the use of a
reward waiver with our goal of
expanding broadcast station ownership
opportunities for small businesses and
potential new entrants by allowing an
incubating entity to incubate in markets
other than those in which it is at or near
the applicable local radio ownership
caps. To the extent NAB seeks even
greater flexibility and proposes that we
permit an incubating entity to use a
reward waiver in any market it wishes,
we reject that element of NAB’s
proposal. For the reasons discussed
above, we believe that the better
approach is to require that a reward
waiver be used either in the same
market where the incubation
relationship occurred or in a
comparable market.
61. A group of commenters contend
that our definition of comparable market
could result in applying a reward
waiver in a much larger market than
that in which incubation occurred and
propose limiting the definition of a
‘‘comparable market’’ to those markets
ranked ‘‘5 Up/5 Down’’ from the
incubation market based on Nielsen’s
population rankings. We conclude,
however that the proposed definition
would not necessarily lead to
incubation and use of waivers in
markets that are truly more
‘‘comparable’’ with respect to the
number of stations and independent
owners than the definition we adopt
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above. As an initial matter, we note that
the Nielsen rankings are based on the
population of the relevant market, not
on the number of stations in a given
market or the number of independent
owners. Thus, the markets five up or
five down from the incubation market
might not have the same number of
stations or independent owners as the
incubation market—the very factors we
find most relevant in assessing the
diversity of the market. For example,
according to Nielsen data from Fall
2017, Baltimore is ranked as market 21
and St. Louis is ranked as market 23, yet
Baltimore has only 35 stations, while St.
Louis has 68 stations, resulting in the
markets being subject to different
ownership caps under our rules. In
crafting our standard, we focused
primarily on preventing the potential for
ownership consolidation in a market
with fewer stations and independent
owners than the market in which the
incubation relationship added a new
entrant. In addition, we note that
ownership interests and circumstances
vary widely among incumbent
broadcasters, and it is not self-evident
that an incubating entity will seek to use
a reward waiver in the market with the
largest population possible. Rather, we
expect the decision will be driven by
where the group owner faces ownership
restrictions or wishes to grow a
successful cluster. Finally, it is possible
that the incubating entity does not own
any stations in markets that are within
five up or five down from the
incubation market, in which case it
would have no flexibility to use the
reward waiver. In this regard, we agree
with NAB that the ‘‘5 Up/5 Down’’
proposal is ‘‘unduly restrictive’’ and
could have the effect of inhibiting
participation by potential incubating
broadcasters. For all of the foregoing
reasons, therefore, we decline to adopt
the ‘‘5 Up/5 Down’’ proposal.
62. While we believe that incubating
entities will have no difficulty using
reward waivers under our market
comparability standard, we may allow
an incubating entity to use a reward
waiver in a market that does not meet
our comparability standard if, due to
changed circumstances following the
parties’ submission of their incubation
proposal, there is no longer a
comparable market in which the
incubating entity is at the local radio
ownership cap or AM/FM subcap and
the incubating entity demonstrates why
doing so is consistent with the public
interest. However, we anticipate that
incubating entities will consider our
market comparability standard when
choosing a candidate to incubate given
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our decision to allow an incubating
entity to use its reward waiver in a
market that meets that standard.
63. We will allow an incubating entity
that receives multiple reward waivers
under our program (as a result of
incubating multiple new entrants) to use
no more than one reward waiver per
market. This, as well as our decision
above to grant an incubating entity a
reward waiver only after the incubating
entity successfully completes a
qualifying incubation relationship and
only in the same market as the
incubated station or a comparable
market, will help ensure that reward
waivers do not work against our local
radio ownership limits. Indeed, our
local radio ownership limits promote
competition and viewpoint diversity by
ensuring a sufficient number of
independent radio voices and by
preserving a market structure that
facilitates and encourages new entry
into the local media market. The
safeguards that we adopt today will help
ensure that our incubator program
preserves such a market structure while
further promoting the entry of new and
diverse voices in broadcast radio.
64. Temporary Waiver for Purposes of
Qualifying Incubation Relationships. In
some cases, a prospective incubating
entity may already hold attributable
interests in the maximum number of
radio stations permitted by our Local
Radio Ownership Rule in the market
where it seeks to engage in a qualifying
incubation relationship. To ensure that,
in such circumstances, a prospective
incubating entity may still participate in
our program, we will grant such an
incubating entity a temporary waiver of
the Local Radio Ownership Rule
(including the AM/FM subcap) if the
incubation relationship would result in
the incubating entity holding an
otherwise impermissible, noncontrolling attributable interest in the
incubated station. If such a waiver is
necessary, the Bureau will consider and
approve such a waiver when reviewing
the incubation proposal. This temporary
waiver will expire when the incubation
relationship ends. At that point, if the
incubating entity has met all its
obligations under the approved
incubation relationship and
demonstrates that the relationship was
successful as discussed below, the
incubating entity will be able to obtain
a reward waiver as discussed herein.
65. Criteria for Granting a Waiver. We
will review requests for both the reward
and temporary waiver pursuant to § 1.3
our rules, which requires a showing of
‘‘good cause’’ and applies to all
Commission rules. With regard to the
temporary waiver, the incubating entity
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and incubated entity must demonstrate,
as described in greater detail below, that
they are both eligible for, and intend to
engage in, a qualifying incubation
relationship. To receive a reward
waiver, the incubating entity must
demonstrate that it has completed a
successful qualifying incubation
relationship. Specifically, the
incubating entity must certify (i) that it
complied in good faith with its
incubation agreement, as submitted to
and approved by the Bureau, and the
requirements of our incubator program
discussed herein; and (ii) either that the
incubated entity holds a controlling
interest in the incubated station or a
newly acquired full-service AM or FM
station, or if the incubated station was
a struggling station, that the incubation
relationship has resolved the financial
and/or operational difficulties that the
owner of the previously struggling
station faced prior to incubation and
sought to remedy through the
incubation relationship. If these criteria
are met, we will consider the qualifying
incubation relationship to be successful
even if the incubating entity retains a
non-controlling attributable interest in
the incubated station when the
relationship concludes, provided that
the incubating entity’s interest in the
station complies with the applicable
ownership limits or is permissible
pursuant to a waiver of the local radio
ownership limit (including the AM/FM
subcap). After the incubating entity
demonstrates that it has completed a
successful qualifying incubation
relationship as discussed herein, the
incubating entity need not engage in any
other actions to receive a reward waiver,
beyond seeking to use the waiver in a
comparable market and otherwise being
in compliance with Commission rules
and requirements, and there will be a
rebuttable presumption that granting the
waiver is in the public interest.
66. We find that ‘‘good cause’’ exists
to grant these temporary and reward
waivers because doing so yields benefits
to competition and ownership diversity
in a local market that outweigh the
impact on local competition in the
market in which a waiver is granted. By
tying grant of the reward waiver directly
to station ownership by a new or
previously struggling entity and
restricting the use of reward waivers as
discussed herein, any consolidation
resulting from the use of a reward
waiver will be limited and accompanied
by the establishment of a new, or
stronger, broadcaster in the same or a
comparable market. Indeed, it is our
determination herein that the public
interest would not be served by strictly
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applying the Local Radio Ownership
Rule (including the AM/FM subcaps)
where an established broadcaster that
engages in a qualifying incubation
relationship seeks a waiver of the rule
as discussed in this Order. While in the
context of § 1.3 waiver requests, the
Commission has considered showings of
undue hardship, the equities of a
particular case, or other good cause, in
this particular context an applicant is
required to make a narrower showing as
discussed herein. If the applicant
demonstrates that it has engaged in a
successful qualifying incubation
relationship and that grant of a waiver
is consistent with the goals of our
incubator program, there will be a
rebuttable presumption that granting a
waiver in the incubation market or a
comparable market is in the public
interest.
Procedures for Filing, Reviewing, and
Monitoring Compliance of Incubation
Relationships
67. Before the parties commence a
qualifying incubation relationship, the
Bureau must determine that the
relationship is designed to help a new
entrant, small broadcaster, or struggling
broadcaster gain the ability to own and
operate a full-service AM or FM station
independently and that the relationship
otherwise qualifies for the program.
This section lays out the process for
submission and review of incubation
relationship proposals and how
compliance will be monitored during
the incubation relationship. In addition,
this section describes how the Bureau
will determine whether a particular
incubation relationship has been
successful, such that the incubating
entity is eligible to seek a reward
waiver. We direct the Bureau to
implement these procedures.
68. As a threshold matter, we note
that all incubation proposals must be
based on prospective relationships.
Incubating broadcasters will derive a
significant benefit by receiving the
reward waiver. Consequently, all
incubation proposals must demonstrate
a strong likelihood of promoting the
ultimate program goal of bringing
greater ownership diversity to the
broadcast sector. This will be done by
either enabling the incubated entity to
own and operate a newly acquired fullservice AM or FM radio station
independently, or by improving the
incubated entity’s ability to retain and
operate independently the struggling
station it currently owns. To ensure that
a proposed incubation relationship
comports with the program’s goal of
broadening ownership diversity, we
require prior Bureau review of the
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proposal with an eye towards its
adherence to the program requirements
described in the instant order.
Bureau Review of Incubation Proposals
69. Process for Submitting Incubation
Proposals. There are several ways in
which an incubation proposal might
come before the Bureau. We expect that
most incubation proposals will
accompany an assignment, transfer of
control, or construction permit
application. We direct the Bureau
authority to modify the FCC Forms,
including instructions and worksheets,
as needed to enable applicants to
indicate on the relevant FCC Form that
the submission involves an incubation
proposal. Such applications seeking to
transfer, assign, or obtain an
authorization are subject to public
notice and petitions to deny and
informal objections under the
Commission’s rules, and in addition to
reviewing such applications pursuant to
its routine review processes, the Bureau
will review accompanying incubation
proposals and approve or reject such
proposals. As part of this review, the
Bureau will also assess whether any
request for temporary waiver of the
ownership rules in the incubated market
should be granted to permit the
incubation relationship.
70. For any incubation relationship
that does not trigger a FCC Form filing
requirement, the proposal must be filed
as a Petition for Declaratory Ruling in
the Incubator docket, MB Docket No.
17–289, in the Commission’s Electronic
Comment Filing System (ECFS). Just as
in the application context, if a
temporary waiver of the ownership
rules is needed for the incubation
relationship, then the waiver request
must accompany the Petition for
Declaratory Ruling. The Bureau will act
on such petitions and temporary waiver
requests pursuant to its standard
processes. As described above, any
temporary waivers needed for the
incubator program, irrespective of
whether the proposal comes via an
application or a Petition for Declaratory
Ruling, will be granted (or denied)
pursuant to § 1.3 of the Commission’s
rules.
71. The key factors guiding review of
an incubation proposal will be whether:
(1) The potential incubated entity has
the wherewithal to obtain the necessary
financing and support, absent the
proposed incubation relationship; (2)
the proposal provides for an incubation
relationship addressing the needs that
the incubated entity has (e.g., financial,
technical, managerial, etc.) to be able to
own and operate a full-service AM or
FM station independently after the
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relationship has ended; and (3) the
incubated entity retains de jure and de
facto control over the station to be
incubated. To assess whether the
incubation proposal meets these factors,
the Bureau will review two forms of
documentation: (1) A written incubation
contract between the parties; and (2) a
certified statement that the incubated
and incubating entities must each
submit. These submissions will be the
Bureau’s best indications of whether the
proposed incubation relationship is
likely to promote the program’s goals of
increasing diverse station ownership by
enabling a qualified incubated entity to
own and operate a full-service AM or
FM station independently. The Bureau,
however, may also require the
applicants to submit additional
information if needed to determine
whether the proposed incubation
relationship is likely to promote the
goals of our incubator program as
discussed herein.
72. Written Incubation Contract. The
incubation proposal must contain a
written contract between the parties
memorializing all aspects of the
incubation relationship, so as to
demonstrate both compliance with
program requirements (e.g., that the
incubated entity has both de jure and de
facto control) and the steps the parties
will take to put the incubated entity in
a position to own and operate a fullservice AM or FM radio station
independently.
73. The contract must detail the level
of equity interest each party will bring
to the relationship. The incubated entity
must show that it is providing a
minimum equity stake as detailed
above. The contract must also detail the
parties’ plan to unwind the incubation
relationship and the steps they will take
to enable the incubated entity to own
and operate a full-service AM or FM
station independently, be it the station
that is the subject of incubation or
another station to be acquired upon
conclusion of the incubation
relationship. The contract must provide
the incubated entity with the option to
buy out the incubating entity’s noncontrolling interest in the incubated
station. As described above, the
incubated entity can choose not to
pursue this option and maintain the
existing relationship along with its
controlling interest. Alternatively, the
incubated entity may choose to sell its
interest in the incubated station and use
the proceeds from the sale to acquire
another full-service AM or FM station.
In that case, we expect the incubating
entity to help the incubated entity
identify a full-service AM or FM station
to buy and obtain the financing
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necessary to purchase the station. The
contract must also provide for this
alternative option. We require the
contract to contain both options because
we recognize that the incubated entity
may not be well-positioned at the outset
of the relationship to determine which
approach best suits its long-term
business interests in the broadcast
sector. The incubated entity’s
anticipated growth trajectory may
change as a result of the incubating
entity’s mentorship and introduction to
capital sources that may have been
previously unavailable. Indeed, we hope
this will be the case. Consequently,
while still ensuring that the incubated
entity ultimately independently owns
and operates a radio station, we do not
mandate a pre-determined mechanism
for how this goal will be achieved. As
described below, however, the parties
must notify the Bureau no later than six
months before the end of the contract
term which option they intend to
pursue.
74. Certified Statements. Along with a
written agreement detailing the terms of
the incubation relationship and the
rights and obligations of each party, the
incubating and incubated entities must
each file a certified statement
describing, among other things, each
party’s background, qualifications, and
resources, and how these will enable the
party, via the incubation relationship, to
promote the goals of the incubator
program—i.e., enabling a new entrant or
small business to own and operate a
full-service AM or FM station
independently or to place a previously
struggling station on a firmer footing. As
part of the statement, the incubated
entity must certify that its annual
revenues for the previous three years
did not exceed the SBA revenue
standard and that during the preceding
three years it held attributable interests
in no more than three full-service AM
and FM stations (listing the stations,
community of license, and facility IDs of
each), and that it did not hold an
attributable interest in any TV stations,
consistent with the eligibility standards
adopted above. In addition, if the
incubation proposal is being filed as a
Petition for Declaratory Ruling, the
potential incubated entity must make
the same certifications and attribution
disclosures that it would have had to
submit were it filing the FCC Form 301,
314, or 315. We also require a potential
incubated entity to include in its
application a certified statement laying
out why it is unable to acquire a
controlling interest in the incubated
station, or successfully operate the
station, absent the proposed incubation
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relationship and the funding, support,
or training provided thereby.
75. Likewise, the incubating entity
must certify that it has the resources and
experience necessary to help the
incubated entity become an
independent owner and operator of the
incubated station or another full-service
AM or FM station and that it will devote
those resources and experience to
achieve that goal. Dedicating executive
and management personnel to provide
training, strategic advice, and other
support to the incubated entity may
help demonstrate that an experienced
broadcaster is committed and has the
resources necessary to incubate a new
entrant successfully. Longtime
ownership of radio stations that are in
the same service as the incubated
station and in multiple markets is
another indicator of the owner’s
potential for success as an incubator.
Indeed, due to their resources and
experience, station group owners may
be in a particularly good position to
help persons not only become radio
licensees but also succeed in radio
station ownership. In addition, the
incubated and incubating entities must
both certify that the incubated entity
will maintain operational and
management control of the station,
including decisions regarding
programming, personnel, and finances.
These submissions will enable the
Bureau to verify that the incubated
entity is a bona fide entity, without
links to the incubating entity absent the
incubation relationship, and truly needs
the resources of the incubator program.
76. The goal of this program is to
bring new voices to the local radio
market and to stabilize those small
broadcasters that might otherwise drop
out of the market. While recognizing
that the waiver the incubating entity
will receive at the end of the incubation
relationship is the best way to
encourage participation in our program
by established broadcasters, we do not
grant these waivers lightly. The
submissions described above provide an
additional opportunity to ensure that
both the incubating and incubated
entities are legitimate participants in the
program. If the Commission determines
at a later date that either submission
contained a misrepresentation this
could lead to a withholding or
revocation of a waiver, as well as
referral to the Enforcement Bureau for
further action.
Compliance During Term of Incubation
Relationship
77. Once the incubation contract has
gone into effect, on the annual
anniversary of the effective date of the
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contract, the incubating and incubated
entities must jointly file a certified
statement describing the incubation
activities during the preceding year and
how these comport with the
commitments laid out in the incubation
contract. The statement must describe
the progress being made towards the
ultimate goal of station ownership, or
greater stability regarding current
ownership, by the incubated entity. This
annual certified statement must be filed
both in the Incubator docket via ECFS
and the parties’ public inspection files,
so as to enable public review. These
statements will be the primary
mechanism by which the Commission
and the public can gauge compliance
with the terms of the incubation
contract and progress towards the goal
of independent station ownership. If,
upon review of an annual statement, the
Bureau has questions or concerns, staff
may follow up with the parties.
78. No later than six months before
the contract termination date, the
parties must make a submission to the
Commission stating which option for
station ownership the incubated entity
plans to pursue at the conclusion of the
relationship—e.g., indicating that the
incubated entity intends to buy out the
incubating entity’s non-controlling
interest in the incubated station or that
the parties will work together to identify
and secure another full-service AM or
FM station for the incubated entity to
acquire. Accordingly, during the
remainder of the contract period, both
parties can devote some resources
towards effectuating the station
ownership goal. For example, both
parties may need to commit some
resources towards finding a new station
or obtaining financing for the incubated
entity or both.
Final Bureau Review and Grant of
Reward Waiver to Incubator
79. At the end of the three-year
contract period, the parties must again
file a joint certified statement reporting
on the previous year’s incubation
activities. This submission will,
however, also state whether the
incubated entity has acquired a new
station or will continue to retain its
controlling interest in the incubated
station, either with or without pursuing
its option to buy out the incubating
entity’s non-controlling interest. If the
goal of the incubation relationship was
to stabilize a previously struggling
station, this third annual filing must
describe the current status of the
incubated station and whether it is now
on a firmer footing. In the event of a
shorter incubation relationship due to
exceptional progress on the part of the
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incubated entity in becoming an
independent owner and operator of a
full-service AM or FM station, the same
filing requirement will apply, only the
filing may be made before the third year.
The Bureau will have 120 days after the
filing of this statement to review the
submission and ensure that the
expectations for the incubation
relationship and all program
requirements were met. The Bureau may
extend the review period if needed. If
the incubation relationship required a
temporary waiver of the ownership cap
and the incubating entity plans to use
its reward waiver to retain an otherwise
impermissible attributable interest in
the incubated station, including buying
out the incubated entity’s interest in the
incubated station, then the incubating
entity must file a waiver request along
with the final joint statement. The
temporary waiver will remain in effect
during the Bureau’s review period. In
the event that the incubation
relationship is deemed unsuccessful
and the incubating entity cannot receive
a reward waiver, the Bureau will extend
the temporary waiver for a set time
period as necessary to give the parties
an opportunity to unwind the
relationship.
80. In the absence of any negative
determination from the Bureau by the
end of the 120-day review period,
following submission of a final joint
statement, the incubating entity will
then have three years in which to
submit a request to use the presumptive
reward waiver. The request must be
submitted with a copy of the Bureau
document(s) that approved the
qualifying incubation relationship,
including any document(s) that
approved an extension of the original
term as discussed above. If the
incubation relationship proposal was
submitted and approved as part of a
Form 301 construction permit
application or a Form 314 or Form 315
assignment or transfer of control
application, the waiver request must
also include the file number of the
approved application. As described
above, there is a rebuttable presumption
that granting a reward waiver is in the
public interest if the incubating entity
seeks the waiver for either the incubated
market or a comparable market and the
incubating entity is otherwise in
compliance with the Commission’s
rules and requirements. If the
incubating entity wishes to use its
reward waiver to purchase the
incubated station, it must file its
application seeking an assignment of
license or transfer of control application
contemporaneously with its final annual
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certified statement. It is necessary for
the incubating entity to do this to ensure
that the ownership limits in the
incubated market are not violated when
the temporary waiver for the incubation
period expires.
81. While incubation contracts are
intended to last no longer than three
years, parties may extend the incubation
relationship for one additional period of
up to three years subject to Bureau
approval. For example, if the parties
believe they need an additional six
months beyond the initial three-year
period to complete a new station
purchase then they must seek an
extension for six months. Parties that
wish to extend their relationships must
file this request no later than 120 days
before the end of the initial three-year
contract period. The incubating entity,
however, may only seek a reward
waiver, either for the incubated market
or another market, after the successful
completion of the incubation
relationship, whatever the extended
time period is—be it six months or three
years. If, as part of the extension, there
are any revisions to the initial
incubation contract, the proposed
revised contract must be filed along
with the extension request. The Bureau
will have 120 days to review the revised
contract and request for extension.
Absent Bureau action to the contrary
within the 120-day period, the revised
contract and request for extension time
will be deemed effective, assuming they
do not involve an assignment or transfer
of control of a station. If there are no
changes in the ownership/attribution/
control structure of the agreement (e.g.,
incubator’s control over the incubated
station has not increased), it is unlikely
to raise concerns for the Bureau. As a
general matter, the requirements for the
standard three-year contract period will
apply during this extended period, but
there may need to be some
modifications depending on the
circumstances. For example, an annual
filing requirement will not make sense
for a three-month extension. The Bureau
will notify the parties of any such
modifications.
III. Procedural Matters
82. Paperwork Reduction Act
Analysis. This Order contains
information collection requirements
subject to the Paperwork Reduction Act
of 1995 (PRA), Public Law 104–13. The
requirements will be submitted to the
Office of Management and Budget
(OMB) for review under Section 3507(d)
of the PRA. OMB, the general public,
and other Federal agencies will be
invited to comment on the information
collection requirements contained in
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this proceeding. The Commission will
publish a separate document in the
Federal Register at a later date seeking
these comments. In addition, we note
that, pursuant to the Small Business
Paperwork Relief Act of 2002, Public
Law 107–198, see 44 U.S.C. 3506(c)(4),
the Commission previously sought
specific comment on how it might
further reduce the information
collection burden for small business
concerns with fewer than 25 employees.
We have described impacts that might
affect small businesses, which includes
most businesses with fewer than 25
employees, in the Final Regulatory
Flexibility Act Analysis.
Final Regulatory Flexibility Analysis
83. As required by the Regulatory
Flexibility Act of 1980, as amended
(RFA), an Initial Regulatory Flexibility
Analysis (IRFA) was incorporated in the
Notice of Proposed Rulemaking (NPRM)
in this proceeding. See 83 FR 774 (Jan.
8, 2018). The Commission sought
written public comments on proposals
in the NPRM, including comment on the
IRFA. The Commission received no
comments on the IRFA. The present
Final Regulatory Flexibility Analysis
(FRFA) conforms to the RFA.
84. The Report and Order adopts
requirements that will govern the
incubator program that the Commission
previously decided to adopt to support
the entry of new and diverse voices into
the broadcasting industry. The
incubator program seeks to provide
established broadcasters with an
inducement in the form of an ownership
rule waiver to invest the time, money,
and resources needed to facilitate
broadcast station ownership by new and
diverse entrants. Through the incubator
program, established broadcasters (i.e.,
incubating entities) will provide new
entrants or small broadcasters (i.e.,
incubated entities) with the training,
financing, and access to resources that
would be otherwise unavailable to these
entities. At the end of the incubation
relationship, the incubated entity will
either own a broadcast station or will
retain ownership of a previously
struggling station, now set on firmer
footing. In return for its support, the
incubating entity will receive a waiver
of the Commission’s Local Radio
Ownership Rule that the incubating
entity can use either in the incubated
market or in a comparable market as
discussed in the Report and Order,
within three years of the successful
conclusion of a qualifying incubation
relationship.
85. To qualify for participation in the
incubator program, the parties must
seek prior approval from the
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Commission that their proposed
incubation relationship comports with
the program requirements. The key
factors guiding review of incubation
proposals will be whether the potential
incubated entity would have been able
to obtain the necessary financing and
support absent the proposed incubation
relationship; whether the proposal
provides the incubated entity with
adequate financing, training, and
support over the course of the
incubation relationship to ensure its
success; and whether the incubated
entity retains de jure and de facto
control over the station to be incubated.
The standard term required for a
qualifying incubation relationship will
be three years, but the relationship may
be extended up to an additional three
years.
86. Qualifying incubation
relationships must provide the
incubated entity with an option to
purchase the incubating entity’s equity
interest in the incubated station, if it
holds one, for a price that is no more
than fair market value and/or terminate
the incubating entity’s creditor-debtor
relationship with the incubated entity at
the conclusion of the incubation
relationship. At the end of the
qualifying incubation relationship, the
incubated entity may decide not to
exercise this option and choose instead
to retain its existing controlling interest
in the incubated station. Alternatively,
the incubated entity may choose to sell
its interest in the incubated station and
use the proceeds from the sale to
acquire another full-service AM or FM
station. In that case, the Commission
expects the incubating entity to help the
incubated entity identify a full-service
AM or FM station to buy and obtain the
financing necessary to purchase the
station. Absent a showing at the end of
the qualifying incubation relationship
that the incubated entity holds a
controlling interest in the incubated
station or a newly acquired full-service
AM or FM station, the incubating entity
will not be eligible to receive a waiver
of the Local Radio Ownership Rule. If
the goal of the incubation relationship
was to stabilize a previously struggling
station, then the joint certified filing
must describe the status of the
incubated station and whether it is now
on a firmer footing. If an incumbent
broadcaster successfully incubates a
new, small entrant, or a small struggling
station owner, as part of the incubator
program, it will be eligible to receive a
waiver of the Local Radio Ownership
Rule following the conclusion of the
qualifying incubation relationship. Such
a waiver can be used for up to three
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years after the successful completion of
the qualifying incubation relationship
and must be used in either the
incubated market or a comparable radio
market, as discussed in the Report and
Order. To receive a reward waiver, the
incubating entity must demonstrate that
it has completed a successful qualifying
incubation relationship. Specifically,
the incubating entity must certify (i) that
it complied in good faith with its
incubation agreement, as submitted to
and approved by the Bureau, and the
requirements of our incubator program
discussed herein; and (ii) either that the
incubated entity holds a controlling
interest in the incubated station or a
newly acquired full-service AM or FM
station, or if the incubated station was
a struggling station, that the incubation
relationship has resolved the financial
and/or operational difficulties that the
owner of the previously struggling
station faced prior to incubation and
sought to remedy through the
incubation relationship.
87. In addition, to the extent the
incubating entity needs a waiver of the
Local Radio Ownership Rule to engage
in a qualifying incubation relationship
(for example, if the incubating entity is
already at the applicable local radio
ownership limit in the market and its
investment in the incubated station
would exceed that limit), we will grant
the incubating entity a temporary
waiver of the Local Radio Ownership
Rule (including the AM/FM subcap) to
allow the incubating entity to acquire an
otherwise impermissible
noncontrolling, attributable interest in
the incubated station for the duration of
the qualifying incubation relationship.
With regard to the temporary waiver,
the incubating entity and incubated
entity must demonstrate that they are
both eligible for, and intend to engage
in, a qualifying incubation relationship,
as discussed in the Report and Order.
88. The Report and Order implements
a long overdue mechanism to address
the primary barriers to station
ownership by new and diverse entities:
lack of access to capital and the need for
technical and operational experience. In
implementing this incubator program,
the Commission’s expectation is that
each successful incubation relationship
will result in the acquisition of a
broadcast radio station by a new entrant
or small business, or the preservation of
an existing, but struggling, small
broadcaster. Accordingly, successful
implementation of this incubator
program will promote ownership
diversity by fostering new entry in the
broadcasting sector by entrepreneurs
and small businesses, including those
owned by women and minorities.
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Summary of Significant Issues Raised by
Public Comments in Response to the
IRFA
89. The Commission received no
comments in response to the IRFA.
Response to Comments by the Chief
Counsel for Advocacy of the Small
Business Administration
90. Pursuant to the Small Business
Jobs Act of 2010, which amended the
RFA, the Commission is required to
respond to any comments filed by the
Chief Counsel for Advocacy of the Small
Business Administration (SBA), and to
provide a detailed statement of any
change made to the proposed rules as a
result of those comments. The Chief
Counsel did not file any comments in
response to the proposed rules in this
proceeding.
Description and Estimates of the
Number of Small Entities to Which the
Rules Will Apply
91. The RFA directs agencies to
provide a description of and, where
feasible, an estimate of the number of
small entities that may be affected by
the proposed rules, if adopted. The RFA
generally defines the term ‘‘small
entity’’ as having the same meaning as
the terms ‘‘small business,’’ ‘‘small
organization,’’ and ‘‘small governmental
jurisdiction.’’ In addition, the term
‘‘small business’’ has the same meaning
as the term ‘‘small business concern’’
under the Small Business Act. A small
business concern is one which: (1) Is
independently owned and operated; (2)
is not dominant in its field of operation;
and (3) satisfies any additional criteria
established by the SBA.
92. The rules proposed herein will
directly affect small radio broadcast
stations. Below, we provide a
description of these small entities, as
well as an estimate of the number of
such small entities, where feasible.
93. Radio Stations. This Economic
Census category ‘‘comprises
establishments primarily engaged in
broadcasting aural programs by radio to
the public. Programming may originate
in their own studio, from an affiliated
network, or from external sources.’’ The
SBA has established a small business
size standard for this category as firms
having $38.5 million or less in annual
receipts. Economic Census data for 2012
shows that 2,849 radio station firms
operated during that year. Of that
number, 2,806 firms operated with
annual receipts of less than $25 million
per year. Therefore, based on the SBA’s
size standard the majority of such
entities are small entities.
94. According to Commission staff
review of the BIA/Kelsey, LLC’s Media
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Access Pro Radio Database on June 22,
2018, about 11,365 (or about 99.9
percent) of 11,371 commercial radio
stations had revenues of $38.5 million
or less and thus qualify as small entities
under the SBA definition. The
Commission has estimated the number
of licensed commercial AM radio
stations to be 4,633 stations and the
number of licensed commercial FM
radio stations to be 6,738, for a total
number of 11,371. We note the
Commission has also estimated the
number of licensed noncommercial
(NCE) FM radio stations to be 4,128.
Nevertheless, the Commission does not
compile and otherwise does not have
access to information on the revenue of
NCE stations that would permit it to
determine how many such stations
would qualify as small entities.
95. We also note, that in assessing
whether a business entity qualifies as
small under the above definition,
business control affiliations must be
included. The Commission’s estimate
therefore likely overstates the number of
small entities that might be affected by
its action, because the revenue figure on
which it is based does not include or
aggregate revenues from affiliated
companies. In addition, to be
determined a ‘‘small business,’’ an
entity may not be dominant in its field
of operation. We further note that it is
difficult at times to assess these criteria
in the context of media entities, and the
estimate of small businesses to which
these rules may apply does not exclude
any radio station from the definition of
a small business on these bases; thus,
our estimate of small businesses may
therefore be over-inclusive. Also, as
noted above, an additional element of
the definition of ‘‘small business’’ is that
the entity must be independently owned
and operated. The Commission notes
that it is difficult at times to assess these
criteria in the context of media entities,
and the estimates of small businesses to
which they apply may be over-inclusive
to this extent.
Description of Projected Reporting,
Recordkeeping, and Other Compliance
Requirements
96. In this section, we identify the
reporting, recordkeeping, and other
compliance requirements adopted in the
Report and Order and consider whether
small entities are affected
disproportionately by any such
requirements. The Commission decided
to adopt an incubator program with the
goal of creating ownership opportunities
for new entrants and small businesses,
thereby promoting competition and
diversity in the broadcast industry. In
keeping with that goal, the program
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requirements that the Commission
adopted in the Report and Order will
enable the pairing of small aspiring, or
struggling, broadcast station owners
with established broadcasters. These
incubation relationships will provide
new entrants and struggling small
broadcasters access to the financing,
mentoring, and industry connections
that are necessary for success in the
industry but to date have been
unavailable to many. Participation in
the incubator program is optional, not
mandatory. The Commission’s
expectation is that each successful
incubation relationship will result in
the acquisition of a broadcast radio
station by a new entrant or small
business, or the preservation of an
existing, but struggling, small
broadcaster. Therefore, the Commission
anticipates that the incubator program
will benefit small entities that
participate in the program, not burden
them.
97. Reporting Requirements. The
Commission expects that most
incubation proposals will accompany an
assignment, transfer of control, or
construction permit application. The
Commission directs its Media Bureau
(Bureau) authority to modify the
relevant FCC Forms, including
instructions and worksheets, as needed
to enable applicants to indicate on the
form that the submission involves an
incubation proposal. Such applications
seeking to transfer, assign, or obtain an
authorization are subject to public
notice and petitions to deny and
informal objections under the
Commission’s rules, and in addition to
reviewing such applications pursuant to
its routine review processes, the Bureau
will review accompanying incubation
proposals and approve or reject such
proposals. For any incubation
relationship that does not trigger an FCC
form filing requirement, the proposal
must be filed as a Petition for
Declaratory Ruling in the Incubator
docket, MB Docket No. 17–289, in the
Commission’s Electronic Comment
Filing System (ECFS). Just as in the
application context, if a temporary
waiver of the ownership cap is needed
for the incubation relationship, then the
waiver request must accompany the
Petition for Declaratory Ruling.
98. The incubation proposal must
contain a written contract between the
parties memorializing all aspects of the
incubation relationship, so as to
demonstrate both compliance with
program requirements (e.g., that the
incubated entity has both de jure and de
facto control) and the steps the parties
will take to put the incubated entity in
a position to own and operate a full-
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service AM or FM radio station
independently. The contract must detail
the level of equity interest each party
will bring to the relationship. The
incubated entity must show that it is
providing a minimum equity stake as
detailed above. The contract must also
detail the parties’ plan to unwind the
incubation relationship and the steps
they will take to enable the incubated
entity to own and operate a full-service
AM or FM station independently, be it
the station that is the subject of
incubation or another station to be
acquired upon conclusion of the
incubation relationship. The contract
must provide the incubated entity with
the option to buy out the incubating
entity’s non-controlling interest in the
incubated station. The incubated entity
can choose not to pursue this option
and instead maintain its existing
controlling interest in the incubated
station. Alternatively, the incubated
entity may choose to sell its interest in
the incubated station and use the
proceeds from the sale to acquire
another full-service AM or FM station.
In that case, we expect the incubating
entity to help the incubated entity
identify a full-service AM or FM station
to buy and obtain the financing
necessary to purchase the station. The
contract must also provide for this
alternative option.
99. Along with an agreement detailing
the terms of the incubation relationship
and the rights and obligations of each
party, the incubating and incubated
entities must each file a certified
statement describing, among other
things, each party’s background,
qualifications, and resources, and how
these will enable the party, via the
incubation relationship, to promote the
goals of the incubator program—i.e.,
enabling a new entrant or small
business to own and operate a fullservice AM or FM station independently
or to place a previously struggling
station on a firmer footing. As part of
the statement, the incubated entity must
certify that its annual revenues for the
previous three years did not exceed the
SBA revenue standard and that during
the preceding three years it held
attributable interests in no more than
three full-service AM and FM stations
(listing the stations, community of
license, and facility IDs of each), and
that it did not hold an attributable
interest in any TV stations, consistent
with the eligibility standards adopted in
the Report and Order. In addition, if the
incubation proposal is being filed as a
Petition for Declaratory Ruling, the
potential incubated entity must make
the same certifications and attribution
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disclosures that it would have had to
submit were it filing the FCC Form 301,
314, or 315. The Report and Order also
requires a potential incubated entity to
include in its application a certified
statement laying out why it is unable to
acquire a controlling interest in the
incubated station, or successfully
operate the station, absent the proposed
incubation relationship and the funding,
support, or training provided thereby.
Likewise, the incubating entity must
certify that it has the resources and
experience necessary to help the
incubated entity become an
independent owner and operator of the
incubated station or another full-service
AM or FM station and that it will devote
those resources and experience to
achieve that goal.
100. In addition, the incubated and
incubating entities must each certify
that the incubated entity will maintain
operational and management control of
the station, including decisions
regarding programming, personnel, and
finances. These submissions will enable
the Bureau to verify that the incubated
entity is a bona fide entity, without
links to the incubating entity absent the
incubation relationship, and truly needs
the resources of the incubator program.
Once the incubation contract has gone
into effect, on the annual anniversary of
the effective date of the contract, the
incubating and incubated entities must
jointly file a certified statement
describing the incubation activities
during the preceding year and how
these comport with the commitments
laid out in the incubation contract. The
statement must describe the progress
being made towards the ultimate goal of
station ownership, or greater stability
regarding current ownership, by the
incubated entity. This annual certified
statement must be filed both in the
Incubator docket via ECFS and the
parties’ public inspection files, so as to
enable public review. These statements
will be the primary mechanism by
which the Commission and the public
can gauge compliance with the terms of
the incubation contract and progress
towards the goal of independent station
ownership. If, upon review of an annual
statement, the Bureau has questions or
concerns, staff may follow up with the
parties. No later than six months before
the contract termination date, the
parties must make a submission to the
Commission stating which option for
station ownership the incubated entity
plans to pursue at the conclusion of the
relationship—e.g., indicating that the
incubated entity intends to buy out the
incubating entity’s non-controlling
interest in the incubated station or that
the parties will work together to identify
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Federal Register / Vol. 83, No. 167 / Tuesday, August 28, 2018 / Rules and Regulations
and secure another full-service AM or
FM station for the incubated entity to
acquire.
101. At the end of the three-year
contract period, the parties must again
file a joint certified statement reporting
on the previous year’s incubation
activities. This submission will,
however, also state whether the
incubated entity has acquired a new
station or will continue to retain its
controlling interest in the incubated
station, either with or without pursuing
its option to buy out the incubating
entity’s non-controlling interest. If the
goal of the incubation relationship was
to stabilize a previously struggling
station, this third annual filing must
describe the current status of the
incubated station and whether it is now
on a firmer footing. In the event of a
shorter incubation relationship due to
exceptional progress on the part of the
incubated entity in becoming an
independent owner and operator of a
full-service AM or FM station, the same
filing requirement will apply, only the
filing may be made before the third year.
If the incubation relationship required a
temporary waiver of the ownership cap
and the incubating entity plans to use
its reward waiver to retain an otherwise
impermissible attributable interest in
the incubated station, including buying
out the incubated entity’s interest in the
incubated station, then the incubating
entity must file a waiver request along
with the final joint statement.
102. While incubation contracts are
intended to last no longer than three
years, parties may extend the incubation
relationship for one additional period of
up to three years subject to Bureau
approval. Parties that wish to extend
their relationships must file this request
no later than 120 days before the end of
the initial three-year contract period.
The incubating entity, however, may
only seek a reward waiver, either for the
incubated market or another market,
after the successful completion of the
qualifying incubation relationship,
whatever the extended time period is—
be it six months or three years. If, as part
of the extension, there are any revisions
to the initial incubation contract, the
proposed revised contract must be filed
along with the extension request.
103. In the absence of any negative
determination from the Bureau by the
end of the 120-day review period,
following submission of a final joint
certified statement, the incubating entity
will then have three years in which to
submit a request to use the presumptive
reward waiver. The request must be
submitted with a copy of the Bureau
document(s) that approved the
qualifying incubation relationship,
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including any document(s) that
approved an extension of the original
term as discussed in the Report and
Order. If the incubation relationship
proposal was submitted and approved
as part of a Form 301 construction
permit application or a Form 314 or
Form 315 assignment or transfer of
control application, the waiver request
must also include the file number of the
approved application. If the incubating
entity wishes to use its reward waiver
to purchase the incubated station, it
must file its application seeking an
assignment of license or transfer of
control contemporaneously with its
final annual certified statement. It is
necessary for the incubating entity to do
this to ensure that the ownership limits
in the incubated market are not violated
when the temporary waiver for the
incubation period expires.
104. Recordkeeping Requirements.
Under the Commission’s existing public
file rules, licensees and permittees of
commercial and noncommercial AM
and FM stations are already required to
retain in their public inspection file a
copy of any application tendered for
filing with the Commission and related
materials as discussed in the rules.
Thus, in addition to filing with the
Bureau, parties to incubation contracts
must retain a copy of all application
materials, including the proposed
incubation contract, in their public
inspection files. Similarly, a copy of
each annual certified statement
discussed above must be filed both in
the Incubator docket via ECFS and the
parties’ public inspection files.
Consistent with the Commission’s
existing public file rules, items in the
public file that are required to be filed
with the Commission will be
automatically imported into the entity’s
online public file, and entities will only
be responsible for uploading to the
online file items that are not also filed
in the Consolidated Database System
(CDBS) or Licensing and Management
System (LMS) or otherwise maintained
by the Commission on its own website.
105. Other Compliance Requirements.
In addition to the other compliance
requirements discussed above, the
Report and Order also adopts the
following:
To ensure that the incubated entity
derives the maximum benefit from the
training and mentoring provided by the
incubated entity, the Report and Order
requires that the incubated entity be the
licensee of the incubated station and
maintain ultimate authority over station
personnel, programming, and finances.
The Report and Order adopts certain
safeguards to ensure that the incubated
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entity has the requisite level of
autonomy during the incubation period.
106. First, the Report and Order
requires the incubated entity to satisfy
the following control test consistent
with the Commission’s existing
revenue-based eligible entity definition,
upon which the Report and Order bases
the second prong of the eligibility
standard for the incubator program.
Specifically, the Report and Order
requires that the incubated entity hold
more than 50 percent of the voting
power of the licensee, and if the
licensee is not a publicly traded
company (which will almost assuredly
be the case), a minimum of either 15
percent or 30 percent of the equity
interests, depending on whether
someone else owns or controls more
than 25 percent of the equity interests.
The Report and Order concludes that
applying the control test from the
Commission’s existing eligible entity
rule will best ensure that the incubated
entity retains control of the incubated
station while still giving the parties
some flexibility to establish incubation
relationships that suit their specific
needs. Moreover, using the existing
standard should facilitate both
participation in and administration of
the program, as the standard is already
familiar to licensees.
107. To ensure that the incubated
entity retains autonomy over the
incubated station’s core operating
functions so as to gain the necessary
level of operational expertise, and in
light of concerns raised by some
commenters, the Report and Order
places certain restrictions on the use of
local marketing agreements (LMAs),
joint sales agreements (JSAs), and
shared service agreements (SSAs). The
Commission’s current attribution
standards recognize that same-market
radio LMAs and JSAs above a certain
percentage of the station’s broadcast day
may confer on the brokering station the
potential to exert a significant degree of
influence over core station operating
functions (i.e., programming decisions).
Specifically, the Commission’s
attribution standards regard as
attributable ownership interests samemarket radio LMAs and JSAs in which
the brokering station brokers more than
15 percent of the broadcast time or sells
more than 15 percent of the advertising
time per week. Given the Commission’s
rationale for attributing these
arrangements and the concerns raised in
the record of this proceeding, the Report
and Order adopts the following
safeguards.
108. First, to ensure that the
incubated entity retains control of the
programming aired on the incubated
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station, the Report and Order prohibits
LMAs involving the incubated station.
As defined in the Commission’s rules,
an LMA is any agreement that involves
‘‘the sale by a licensee of discrete blocks
of time to a ‘broker’ that supplies the
programming to fill that time and sells
the commercial spot announcements in
it,’’ regardless of how the agreement is
titled. Second, to ensure that the
incubated entity is able to gain
operational expertise by performing the
core operations of the incubated station,
the Report and Order limits any JSAs or
SSAs involving the incubated station to
the first two years of the initial
incubation period. Pursuant to the
definitions in the Commission’s rules, a
JSA is any agreement with the licensee
of a brokered station that authorizes a
broker to sell advertising time for the
brokered station, and an SSA is any
agreement or series of agreements in
which (i) a station provides any stationrelated services to a station that is not
directly or indirectly under common de
jure control permitted under the
Commission’s regulations, or (ii)
stations that are not directly or
indirectly under common de jure
control permitted under the
Commission’s regulations collaborate to
provide or enable the provision of
station-related services. While the
Commission’s attribution standards do
not regard SSAs as attributable
ownership interests, the Commission is
concerned that allowing these
arrangements to be used for the full
duration of an incubation relationship
could deprive the incubated entity of its
incentive to gain the operational
expertise needed to operate the station
independently at the end of the
relationship. Permitting limited use of
JSAs and SSAs appropriately balances
broadcasters’ representations that these
arrangements can make incubation more
successful with the need to ensure that
each incubated entity learns how to
perform essential station functions
independently in order to be viable in
the long term as an independent
broadcaster. The Commission does not
believe that prohibiting LMAs and
restricting the use of JSAs and SSAs will
reduce the utility of the incubator
program for incubated entities, as the
record and the Commission’s experience
indicate that new owners of radio
stations need assistance primarily with
financing and technical issues, rather
than programming and advertising sales.
109. Moreover, these safeguards will
enable the parties to evaluate whether
the incubated entity is prepared to
operate independently before the
incubation period is complete and while
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the incubating entity remains
contractually obligated to provide
support. By requiring that the incubated
entity actually obtain or produce
programming, sell advertising, and
perform other core operating functions
for the incubated station for at least one
full year prior to the expiration of the
incubation relationship, these
protections will provide for a more
informed assessment of the incubated
entity’s progress and any areas where it
needs additional training and support to
be viable as an independent owner and
operator of the incubated station or
another full-service AM or FM station.
The incubated entity’s experience
performing core operating functions
may provide a persuasive justification
for extending the incubation
relationship if the parties determine that
more time is needed to incubate the
station. While the Report and Order
allows limited use of JSAs and SSAs,
the Report and Order also emphasizes
that these agreements, if used, must be
accompanied by proper training in the
relevant area(s)—e.g., administrative,
technical, sales, etc.—covered by any
such arrangement(s) involving the
incubated station.
110. Finally, the Report and Order
requires that none of the officers,
directors, managing partners, or
managing members of the incubated
entity hold an attributable interest in or
be an employee of the incubating entity.
The Commission is concerned that
allowing an employee or an attributable
interest holder in the incubating entity
to serve as an officer, director, managing
partner, or managing member of the
incubated entity may jeopardize the
independence of the incubated station
given the significant conflicts of
interests that could arise for these
individuals and the significant authority
and potential for influence they would
wield over the incubated station. While
U.S. antitrust laws prohibit, with certain
exceptions, one individual from serving
as an officer or director of two
competing corporations, the
Commission believes that an additional
safeguard is needed to address
circumstances that may be exempt from
or not covered by the antitrust laws,
such as where the two companies are
not competitors, where either company
is not a corporation or does not meet
certain financial thresholds, or where an
officer or director of one company is an
employee but not an officer or director
of the other company.
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43791
Steps Taken To Minimize Significant
Economic Impact on Small Entities, and
Significant Alternatives Considered
111. The RFA requires an agency to
describe any significant, specifically
small business, alternatives that it has
considered in reaching its proposed
approach, which may include the
following four alternatives (among
others): (1) The establishment of
differing compliance or reporting
requirements or timetables that take into
account the resources available to small
entities; (2) the clarification,
consolidation, or simplification of
compliance and reporting requirements
under the rule for such small entities;
(3) the use of performance, rather than
design, standards; and (4) an exemption
from coverage of the rule, or any part
thereof, for small entities.
112. As discussed above, the
Commission decided to adopt an
incubator program with the goal of
creating ownership opportunities for
new entrants and small businesses,
thereby promoting competition and
diversity in the broadcast industry. In
adopting the requirements that will
govern the incubator program, the
Commission considered various options
and alternatives that were proposed in
the NPRM and public comments, and
based on the record, the Commission
concluded that structuring the incubator
program as discussed in the Report and
Order will provide small new entrants
and struggling small broadcasters access
to the financing, mentoring, and
industry connections that are necessary
for success in the broadcasting industry.
The Commission’s expectation is that
each successful incubation relationship
will result in the acquisition of a
broadcast radio station by a new entrant
or small business, or the preservation of
an existing, but struggling, small
broadcaster. Participation in the
incubator program is optional, not
mandatory, and the Commission
anticipates that the incubator program
will benefit small entities that
participate in the program, not burden
them.
Report to Congress
113. Congressional Review Act. The
Commission will send a copy of the
Order, including this FRFA, in a report
to be sent to Congress and the
Government Accountability Office,
pursuant to the Congressional Review
Act, see 5 U.S.C. 801 (a)(1)(A).
IV. Ordering Clauses
114. Accordingly, it is ordered that,
pursuant to the authority contained in
Sections 1, 2(a), 4(i), 257, 303, 307–310,
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Federal Register / Vol. 83, No. 167 / Tuesday, August 28, 2018 / Rules and Regulations
and 403 of the Communications Act of
1934, as amended, 47 U.S.C. 151, 152(a),
154(i), 257, 303, 307–310, and 403, this
Report and Order is adopted.
115. It is further ordered that this
Report and Order shall be effective
thirty (30) days after publication of the
text or a summary thereof in the Federal
Register, except for those requirements
involving Paperwork Reduction Act
burdens, which shall become effective
on the date announced in the Federal
Register document announcing OMB
approval.
116. It is further ordered that the
Media Bureau is hereby directed to
make all necessary changes to Form 301,
Form 314, Form 315, and the
Commission’s electronic database
system to implement the changes
adopted in this Report and Order.
117. It is further ordered that the
Commission’s Consumer and
Governmental Affairs Bureau, Reference
Information Center, shall send a copy of
this Report and Order, including the
Final Regulatory Flexibility Analysis, to
the Chief Counsel for Advocacy of the
Small Business Administration.
118. It is further ordered that,
pursuant to section 801(a)(1)(A) of the
Congressional Review Act, 5 U.S.C.
801(a)(1)(A), the Commission shall send
a copy of the Report and Order to
Congress and to the Government
Accountability Office.
Federal Communications Commission.
Marlene Dortch,
Secretary.
[FR Doc. 2018–18289 Filed 8–27–18; 8:45 am]
BILLING CODE 6712–01–P
DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric
Administration
50 CFR Part 216
RIN 0648–XG408
Implementation of Import Restrictions;
Certification of Admissibility for
Certain Fish Products From Mexico
National Marine Fisheries
Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA),
Commerce.
ACTION: Notification.
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AGENCY:
The Secretary of Commerce,
in cooperation with the Secretaries of
Treasury and Homeland Security, is,
under the authority of the Marine
Mammal Protection Act (MMPA), giving
notice of import restrictions on fish and
fish products from Mexico caught with
SUMMARY:
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gillnets deployed in the range of the
vaquita, an endangered porpoise.
Importation into the United States from
Mexico of fish and fish products
harvested by gillnets in the upper Gulf
of California (UGC) within the vaquita’s
geographic range is now prohibited.
These import restrictions are being
implemented as required by a court
order. These trade restrictions remain in
effect until further court action amends
the preliminary injunction. Harmonized
Tariff Schedule (HTS) codes associated
with the prohibited fish and fish
products are identified below. NMFS is
also requiring that all other fish and fish
products not within the scope of the
import restrictions but imported under
the same published HTS codes be
accompanied by a Certification of
Admissibility.
DATES: Compliance with the import
restrictions and Certification of
Admissibility described in this
document is required beginning August
24, 2018, and will remain in effect until
further notice is published in the
Federal Register indicating otherwise.
FOR FURTHER INFORMATION CONTACT:
Nina Young, NMFS F/IASI at email:
Nina.Young@noaa.gov or phone: 301–
427–8383.
SUPPLEMENTARY INFORMATION: In August
2016, NMFS published a final rule (81
FR 54390 (August 15, 2016); 50 CFR
216.24) implementing the fish and fish
product import provisions (section
101(a)(2)) of the Marine Mammal
Protection Act (MMPA). This final rule
established conditions for evaluating a
harvesting nation’s regulatory programs
to address incidental and intentional
mortality and serious injury of marine
mammals in its fisheries producing fish
and fish products exported to the
United States.
Under the final rule, fish or fish
products cannot be imported into the
United States from commercial fishing
operations that result in the incidental
mortality or serious injury of marine
mammals in excess of U.S. standards
(16 U.S.C. 1371(a)(2)). NMFS published
a List of Foreign Fisheries (LOFF) on
March 16, 2018 (83 FR 11703) to classify
fisheries subject to the import
requirements. Effective January 1, 2022,
fish and fish products from fisheries
identified by the Assistant
Administrator for Fisheries in the LOFF
can only be imported into the United
States if the harvesting nation has
applied for and received a comparability
finding from NMFS. The rule
established the procedures that a
harvesting nation must follow and the
conditions it must meet to receive a
comparability finding for a fishery on
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the LOFF. The final rule established a
five-year exemption period, ending
January 1, 2022, under 50 CFR
216.24(h)(2)(ii) before imports would be
subject to any trade restrictions.
Vaquita are a species of porpoise
endemic to northern Gulf of California
waters in Mexico and are listed as an
endangered species under the U.S.
Endangered Species Act. In November
2016, the International Committee for
the Recovery of the Vaquita (CIRVA)—
a group of international scientists
supported by Mexico and led by
Mexican scientists—reported that less
than 30 individuals are likely to remain.
Gillnets deployed in an illegal fishery
for totoaba (an endangered fish sought
for its swim bladder due to black market
demand within China) are the primary
source of vaquita mortality. NMFS has
identified products coming from
fisheries interacting with vaquita as a
potential focus for import restrictions
under the MMPA.
On May 18, 2017, the Natural
Resources Defense Council (NRDC),
Center for Biological Diversity (CBD),
and the Animal Welfare Institute (AWI)
petitioned the Secretaries of Homeland
Security, the Treasury, and Commerce
to ‘‘ban the importation of commercial
fish or products from fish’’ sourced
using fishing activities that ‘‘result in
the incidental mortality or incidental
serious injury’’ of vaquita ‘‘in excess of
United States standards.’’ The
petitioners requested that the
Secretaries immediately ban imports of
all fish and fish products from Mexico
that do not satisfy the MMPA import
provision requirements, claiming that
emergency action banning such imports
is necessary to avoid immediate,
ongoing, and ‘‘unacceptable risks’’ to
vaquita. NMFS published a notification
of the petition’s receipt on August 22,
2017 (82 FR 39732), and opened a 60day comment period. No final decision
has been taken on the petition.
On March 21, 2018, the petitioners
filed suit before the Court of
International Trade seeking an
injunction requiring the U.S.
Government to ban the import of fish or
fish products from any Mexican
commercial fishery that uses gillnets
within the vaquita’s range. On April 16,
2018, petitioners filed a motion for a
preliminary injunction with oral
arguments held July 10, 2018. The Court
of International Trade granted the
motion for preliminary injunction and
denied the U.S. Government’s motion to
dismiss the lawsuit. The court has
required the U.S. Government to ban the
importation of all fish and fish products
from Mexican commercial fisheries that
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Agencies
[Federal Register Volume 83, Number 167 (Tuesday, August 28, 2018)]
[Rules and Regulations]
[Pages 43773-43792]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18289]
=======================================================================
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 73
[MB Docket No. 17-289, FCC 18-114]
Rules and Policies To Promote New Entry and Ownership Diversity
in the Broadcasting Services
AGENCY: Federal Communications Commission.
ACTION: Final action.
-----------------------------------------------------------------------
SUMMARY: In this document, the Federal Communications Commission
establishes the requirements that will govern the incubator program
that the Commission decided to adopt to support the entry of new and
diverse voices into the broadcast industry.
DATES: This action contains information collection requirements that
have not been approved by the Office of Management and Budget (OMB).
The Commission will publish a document in the Federal Register
announcing the approval date for the information collection
requirements.
ADDRESSES: Federal Communications Commission, 445 12th Street SW, Room
TW-C305, Washington, DC 20554.
FOR FURTHER INFORMATION CONTACT: Radhika Karmarkar,
[email protected], or 202-418-1523.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report
and Order, FCC 18-114, in MB Docket No. 17-289, adopted on August 2,
2018, and released on August 3, 2018. The complete text of this
document is available electronically via the search function on the
FCC's Electronic Document Management System (EDOCS) web page at https://apps.fcc.gov/edocs_public/ (https://apps.fcc.gov/edocs_public/). The
complete document is available for inspection and copying in the FCC
Reference Information Center, 445 12th Street SW, Room CY-A257,
Washington, DC 20554 (for hours of operation, see https://www.fcc.gov/general/fcc-reference-information-center). To request materials in
accessible formats for people with disabilities (Braille, large print,
electronic files, audio format), send an email to [email protected] (mail
to: [email protected]) or call the FCC's Consumer and Governmental Affairs
Bureau at (202) 418-0530 (voice), (202) 418-0432 (TTY).
[[Page 43774]]
Synopsis
I. Introduction
1. With this Report and Order, we establish the requirements that
will govern the incubator program that the Commission previously
decided to adopt to support the entry of new and diverse voices into
the broadcast industry. Last year, the Commission decided to adopt an
incubator program with the goal of creating ownership opportunities for
new entrants and small businesses, thereby promoting competition and
diversity in the broadcast industry. We recognize the need for more
innovative approaches to encourage access to capital, as well as
technical, operational, and management training, for those new entrants
and small businesses that, without assistance, would not be able to own
broadcast stations. Thus, the incubator program is designed with those
specific entities in mind--small businesses, struggling station owners,
and new entrants that do not have any other means to access the
financial assistance and operational support the incubator program
seeks to provide. In keeping with that goal, the program requirements
we adopt today will enable the pairing of small aspiring, or
struggling, broadcast station owners with established broadcasters.
These incubation relationships will provide new entrants and struggling
small broadcasters access to the financing, mentoring, and industry
connections that are necessary for success in the industry but to date
have been unavailable to many.
II. Background
2. The Commission has long contemplated the potential for an
incubator program to provide new sources of capital and support to
entities that may otherwise lack access to financing or operational
experience. In concept, an incubator program seeks to provide an
established broadcaster with an inducement in the form of an ownership
rule waiver or similar benefit to invest the time, money, and resources
needed to facilitate broadcast station ownership by new and diverse
entrants. An incubator program contemplates that, in exchange for a
defined benefit, an established company could assist a new owner by
providing ``management or technical assistance, loan guarantees, direct
financial assistance through loans or equity investments, training, or
business planning assistance.''
3. Although the concept of an incubator program has been discussed
since at least the early 1990s and has received general support, the
Commission had never undertaken the creation of such a program, and
explicitly declined to adopt a program as part of its 2010/2014
Quadrennial Media Ownership Review. In late 2017, however, the
Commission reconsidered that determination and at long last decided to
adopt an incubator program to help address the lack of access to
capital and technical expertise faced by potential new entrants and
small businesses. While the Commission committed to initiating an
incubator program, it desired further input regarding how best to
structure and implement a comprehensive program in light of current
market and regulatory conditions. Accordingly, the NPRM sought comment
on eligibility criteria for the incubated entity; appropriate
incubating activities; potential benefits to the incubating entity; how
such a program would be reviewed, monitored, and enforced; and the
attendant costs and benefits created. See 83 FR 774 (Jan. 8, 2018).
4. The record developed in this proceeding presents a range of
thoughtful suggestions and recommendations for the incubator program.
We are particularly grateful to the Commission's Advisory Committee on
Diversity and Digital Empowerment (ACDDE) for the group's extensive
consideration of the incubator program and the elements that should
define it. The ACDDE working group members devoted many hours to
meetings and review of empirical data before making recommendations to
the full committee on how to structure the incubator program. The
resulting extensive comments provided invaluable research and proposals
that the Commission has carefully considered.
5. With this Report and Order, we implement a long overdue
mechanism to address the primary barriers to station ownership by new
and diverse entities: Lack of access to capital and the need for
technical and operational experience. In implementing this program, our
expectation is that each successful incubation relationship will result
in the acquisition of a broadcast radio station by a new entrant or
small business, or the preservation of an existing, but struggling,
small broadcaster. Accordingly, successful implementation of the
incubator program we adopt today will promote ownership diversity by
fostering entry into the broadcasting sector by entrepreneurs and small
businesses, including those owned by women and minorities.
Services Eligible for Incubator Program
6. The incubator program we outline today will apply to full-
service AM and FM radio broadcast stations, as we find that the radio
industry provides the best opportunities for successful incubation
relationships and the best opportunity for an appropriate reward. In
the NPRM, the Commission sought comment on whether its incubator
program should be focused on radio, as the proposal was initially
conceived, or should apply to television as well. The NPRM further
queried whether the Commission should adopt a phased approach, whereby
the incubator program would be implemented on a trial basis in radio
and then evaluated for possible expansion to the television market.
Based on the record of this proceeding, we find that the radio market
has several advantages over the television market as an incubation
setting.
7. Perhaps most importantly, the cost of obtaining a radio station
is significantly lower than the cost of obtaining a television station.
Indeed, the cost of acquiring a television station is generally many
times that of a radio station. For example, in 2016 the average sales
price of a radio station on the secondary market was approximately $1
million, and the average price of a television station was $53 million.
Due to their lack of broadcasting experience and financial collateral,
new entrants and small broadcasters often face significant difficulties
in accessing the capital needed to purchase broadcast stations in the
secondary market or to participate in Commission broadcast auctions for
new construction permits. Indeed, the record reveals that access to
capital is most often the barrier to broadcast station ownership.
Furthermore, given the larger numbers of radio stations in the country
(11,371 commercial, full-service AM and FM stations) versus television
stations (1,377 commercial, full-service stations), we find that radio
is a more accessible entry point than television. In addition, the
operating costs of running a radio station are significantly lower than
those for operating a television broadcast station. As a going concern,
radio is less cash flow intensive, requires fewer personnel to operate,
and requires programming resources that are less costly than those for
television stations. For these reasons, we find that transitioning from
a qualifying incubation relationship to independent ownership will be
more feasible for incubated entities in the radio service than in
television. Consequently, for entities with already limited capital
resources and operational experience,
[[Page 43775]]
we conclude that radio is a significantly more accessible entry point
into the broadcasting industry than television.
7. We expect that implementing an incubator program focused on the
radio market will also motivate the participation of incumbent
broadcasters, who are key to the success of the program, as they have
the power to ensure that the new entrants and small businesses
attracted to the radio industry are able to acquire, operate, and grow
a broadcast station. As noted above, we anticipate that the inducement
of a waiver of the Commission's Local Radio Ownership Rule will provide
sufficient incentive for incumbent broadcasters to participate in the
program. That is, we expect that radio station group owners will seek
to incubate a new entrant or small broadcaster in order to obtain
permission to exceed the applicable ownership limit in a market. In
reaching this conclusion, we note that the local radio numerical limits
and the AM/FM service caps have remained unchanged since they were
prescribed by Congress over 20 years ago in the Telecommunications Act
of 1996. Thus, the existing Local Radio Ownership Rule has restricted
the ability of incumbent broadcasters to grow larger in any given
market for over two decades. In addition, Joint Sales Agreements (JSAs)
for greater than 15 percent of a station's time remain attributable in
radio. Accordingly, given the longstanding strictures remaining on
radio ownership, we believe a waiver of the Local Radio Ownership Rule
will provide an effective incentive for incumbent broadcasters to
incubate either new entities seeking entry into the broadcasting
industry or small broadcasters.
8. By contrast, the Commission has recently revised the rules
governing local television ownership, including eliminating the
attribution of television JSAs; eliminating the eight voices test,
which required that at least eight independently owned television
stations remain in the market after combining ownership of two stations
in a market; and, adopting a hybrid approach to application of the top-
four prohibition, permitting case-by-case review of the restriction on
ownership of two top-four ranked stations in the same market. In light
of these changes and the state of the record in this proceeding as it
pertains to television station incubation, we do not believe that it
would be appropriate at this time to offer a waiver of the Local
Television Ownership Rule as a reward for incubating a television
station. However, we do not foreclose the possibility of reaching a
different conclusion following the completion of our next quadrennial
review depending on the record that is compiled regarding the local
television marketplace in that proceeding. Additionally, were Congress
to provide an alternative benefit for incubating broadcasters, we would
be strongly inclined to expand the program to include television
stations.
9. Based on our consideration of the record and the current
broadcast marketplace, including the existing broadcast ownership
rules, we conclude that an incubator program has the greatest
likelihood of success in the radio industry. Although some commenters,
including NAB, advocate for an incubator program for both radio and
television broadcast services, for the reasons stated in this section,
we determine that the better approach at this time is to focus our
program on the radio market. We note, however, that the ``leg up''
provided to these new and small broadcasters via the incubator program,
by allowing them to establish a track record of successful station
ownership and providing them increased access to capital, may
ultimately position them to add television stations to their radio
holdings. For all the reasons provided above, we determine that our
initial foray into the use of an incubator program as a mechanism to
increase broadcast ownership diversity should be limited to full-
service radio. As we gain more experience with the program and assess
evolving market and regulatory trends in the television sector, we will
be able to analyze whether it is appropriate to expand the program to
television.
Defining Entities Eligible for Incubation
10. In this section, we establish the eligibility criteria
governing which entities may qualify for incubation under our program.
Our criteria consist of both a numeric limit on the number of stations
a potential incubated entity may own prior to entering into a
qualifying incubation relationship (based on our existing new entrant
bidding credit), as well as a revenue cap (based on our existing
eligible entity definition). Additionally, as discussed below, we adopt
certain safeguards to ensure further that a potential incubated entity
genuinely lacks the necessary resources that would have enabled it to
enter or succeed in the broadcast industry absent the incubation
relationship. Finally, we also address alternative eligibility criteria
that were proposed in our record.
11. The NPRM sought comment on how to determine eligibility for
participation in the incubator program and put forth several options,
including the new entrant bidding credit model, a revenue-based
eligible entity standard, a socially and economically disadvantaged
businesses (SDB) model, and an Overcoming Disadvantages Preference
(ODP) standard. The NPRM also sought comment on which of these
standards best aligns with the Commission's goal of facilitating
ownership opportunities for entities that lack access to capital and
operational experience and, thereby, best promotes competition and
viewpoint diversity in local markets.
12. The ultimate goal of the incubator program is to encourage new
entry into the broadcast industry, an industry which--as our record
demonstrates--is extremely capital-intensive. The Commission has
previously recognized, and the record here confirms, that new entrants
and small businesses have had longstanding difficulties accessing the
needed capital to participate in broadcast ownership. For example,
Diane Sutter, President of ShootingStar Inc., notes that ``[t]he size
of a deal is extremely important to most banks. Many entrants are
limited to purchasing smaller broadcast stations, given their
resources; however, banks often consider it not worth the potential
risk to finance smaller deals for a new owner.'' For our incubator
program to redress the lack of access to capital, as well as to
facilitate operational, managerial, and technical support, it is
critical that our eligibility criteria properly identify those entities
that are most likely to benefit from program participation and,
thereby, increase diversity in the broadcast sector.
13. After careful consideration of the record in this proceeding
and the various standards discussed in the NPRM, we adopt today a two-
pronged eligibility standard that combines a modified version of the
existing new entrant bidding credit standard, long used in the context
of broadcast auctions, with the revenue-based eligible entity
definition contained in our broadcast rules. As detailed below, under
the first prong, the potential incubated entity, including its
attributable interest holders, may hold attributable interests in no
more than three full-service AM or FM radio stations and no TV
stations. The ownership limit of three full-service radio stations does
not include the radio station to be incubated. Under the second prong
of our standard, the entity must also qualify as a small business
consistent with the SBA standards for
[[Page 43776]]
the radio industry based on annual revenue, currently $38.5 million or
less.
14. New Entrant Prong. With respect to the first prong of our
standard, we find that modifying the new entrant eligibility standard
for this purpose by limiting permissible interests to three full-
service AM or FM radio broadcast stations (licenses or unbuilt
construction permits) and no TV stations will focus the program on
entities that are new or comparatively new to the broadcasting industry
(i.e., those with no existing broadcast interests) and small
broadcasters (i.e., those with three or fewer full-service radio
stations, and no TV stations). The record reflects that individuals
seeking to purchase their first or second broadcast station are the
ones that often face the most challenging financial hurdles. Thus, the
eligibility standard we adopt today is targeted specifically to benefit
those small entities seeking to enter the broadcast industry for the
first time and to help broadcasters with one, two, or three radio
stations to secure the toehold they have obtained in the industry.
While we acknowledge that an entity with interests in four or more
radio stations or a television station may not necessarily be
considered a large or established broadcaster, we expect that a
broadcaster with such interests will have more access to traditional
financing and capital resources available, such that the resources
anticipated to flow through the Commission's incubator program would
not be as critical to their entry or survival. Consequently, limiting
the eligibility criteria to those who have no more than three radio
stations (consistent with the current new entrant bidding credit rule's
limitation to ``three mass media facilities''), and no TV stations,
best promotes the purposes of the program.
15. Moreover, analyses of Commission broadcast auctions data
provided in the record show that the new entrant bidding credit--a
modified version of which we adopt herein--has increased successful
participation of small businesses owned by women and minorities in the
auction of construction permits for AM, FM, and TV stations. NAB
performed an analysis of the Commission's broadcast auctions data and
found that winning bidders relying on the Commission's new entrant
bidding credits were more likely to have indicated that they were owned
by women and minorities than winning bidders who did not use the
credit. NAB's analysis focused on nine FM broadcast auctions that
utilized the new entrant bidding credit. Its study concluded that
winning bidders relying on new entrant bidding credits were 93 percent
more likely to be women, and 40 percent more likely to be minorities,
than winning bidders who did not use the credit. In addition, NAB found
that collectively winning bidders using new entrant bidding credits
were 64 percent more likely to be minorities or women than other
winning bidders.
16. We note that the ACDDE also found that the use of the ``new
entrant'' standard in auctions revealed a statistically significant
improvement in female and minority participation after its review of 20
FCC broadcast auctions, more than twice the number evaluated by NAB.
The ACDDE determined that these auctions attracted a total of 2,531
applicants, of which 1,681 were determined to be qualified bidders. Of
the 1,681 qualified bidders, the ACDDE found that (1) 1,457 were new
entrants (i.e., held three or fewer mass media interests); (2)
qualified minority new entrants (12.4 percent) were more prevalent than
qualified minority-owned applicants who were not new entrants (8.7
percent); and (3) qualified women-owned new entrants (10.8 percent)
were more prevalent than qualified women-owned bidders who were not new
entrants (7.9 percent). Based on this review, the ACDDE agrees that,
while not its preferred approach, the new entrant definition ``might
have some utility'' as a means of determining eligibility for
participation in the incubator program.
17. Commission staff also evaluated data from a number of
Commission broadcast auctions conducted over the past several years,
and that data reveal that the new entrant bidding credit has increased
successful participation of small businesses owned by women and
minorities in the auction process for AM, FM, and TV construction
permits. The Commission collects data on information voluntarily filed
by auction participants utilizing FCC Form 175. Staff analysis of
auctions data for 20 auctions shows that of the 2,534 total applicants
for those auctions, 1,457 of them, or 57.5 percent of the applicants,
indicated that they qualified for the new entrant bidding credit. A
total of 408 new entrant bidders were successful in their auction. The
percentage of winning bidders that used a new entrant bidding credit
and identified as women-owned was three times larger (12 percent) than
the percentage of bidders that won without a new entrant bidding credit
and were women-owned (4 percent). Similarly, the percentage of winning
bidders that used a new entrant bidding credit and identified as
minority-owned was almost three times larger (14 percent) than the
percentage of bidders that won without the new entrant bidding credit
and were minority-owned (5 percent).
18. NAB's and the ACDDE's evaluations of the Commission's broadcast
auctions data, like the Commission staff's analysis, suggest that the
Commission's use of the new entrant bidding credit standard has been
effective in diversifying the pool of successful bidders in the
broadcast auctions context. Our assessment encompassed twice as many
auctions as those reviewed by NAB, and the overall results of those
evaluations were similar--that the percentage of winning bidders who
used a new entrant bidding credit and identified as either women-owned
or minority-owned consistently exceeded the percentage of winning
bidders who did not use a new entrant bidding credit and were women-
owned or minority-owned. Thus, we expect that use of a similar new
entrant eligibility standard will be an effective means to diversify
the applicant pool for the incubator program, by targeting those small
broadcasters most in need of the support provided by the incubator
program, including minority and female applicants.
19. Small Business Prong. The second prong of our eligibility
standard requires that incubated entities also qualify as small
businesses consistent with the SBA standards for their industry
grouping, based on annual revenue, currently $38.5 million or less for
radio. NAB supports use of a revenue-based eligible entity standard in
combination with a new entrant standard. The ACDDE objects to a
revenue-based standard standing alone, asserting that this type of
definition ``has little or no value in advancing ownership diversity in
the broadcast context.'' We conclude, however, that the revenue cap, in
conjunction with the first eligibility prong as well as other
safeguards discussed herein, will assist in identifying entities that
are more likely to be in need of incubation by established
broadcasters. The combination of the new entrant eligibility criteria
and the small business revenue standard will narrow the scope of
eligible applicants to those applicants most in need of assistance via
our incubator program. In this way, we expect to achieve our
overarching goal of increasing ownership diversity by facilitating
entry and developing broadcast expertise amongst new and small
broadcasters.
20. After close review of the record, we find that the eligibility
standard set forth above is the best means for identifying incubated
entities whose lack of access to capital and operational
[[Page 43777]]
experience has impeded their ability to participate successfully in the
broadcast sector. We expect that pairing such entities with established
incumbent broadcasters who can provide the necessary capital,
knowledge, and operational support will ultimately promote competition
and viewpoint diversity in local markets. The combination of a
numerical cap on broadcast interests and a revenue limitation will
ensure that incubated entities participating in the program are truly
new or small broadcasters.
21. Moreover, drawn from existing Commission rules, the standard we
adopt today provides a clear, objective metric that is familiar to
broadcasters. Use of an objective standard has the advantage of being
straightforward and transparent for potential applicants, as well as
administrable for the Commission without application of significant
additional processing resources. Furthermore, unlike some of the other
proposals contained in the record, because the new entrant bidding
credit standard is race and gender neutral, it does not raise
constitutional concerns.
22. We decline to adopt an Overcoming Disadvantage Preference (ODP)
standard. The ACDDE advocates for such a standard, which it describes
as a ``race-and-gender-neutral preference'' focused on the experiences
and efforts of an individual person that affords a preference to those
who strived, through superior individual efforts, to attempt to
overcome major impediments to success. According to the ACDDE,
``success or failure in overcoming obstacles is not pertinent;''
rather, what would matter is ``effort, the steps the person took to
persevere.'' We note the concerns raised by NAB that a standard such as
ODP will require the Commission to make subjective decisions on the
qualifications of candidates proposed to be the incubated entity, which
could be time-consuming, complex, and subject to disputes.
23. The Commission has previously assessed ODP and articulated its
concern that the agency lacks the resources to conduct the
individualized reviews recommended as a central component of
implementing ODP. In the broadcast licensing context, the Commission
indicated that the type of individualized consideration that would be
required under an ODP standard could prove to be ``administratively
inefficient, unduly resource intensive, and inconsistent with First
Amendment values.'' We do not find the ACDDE's current filing to have
assuaged those concerns. In the Part I Competitive Bidding Rules
proceeding, the Commission stated that ``it is not clear what proof
should be required from those individuals or entities seeking to
receive such a preference or how to apply the ODP on a neutral basis.
We are also concerned that our review of such a claim would involve a
costly and lengthy process.'' While the ACDDE did offer suggestions for
the administration of an ODP standard, the standard remains inherently
subjective and, we believe, inappropriate for the broadcast licensing
context. Consequently, we affirm our earlier decisions regarding the
administrative infeasibility of an ODP standard. For all of the reasons
stated above, we decline to implement an ODP standard for the incubator
program.
24. In addition to advocating for the use of ODP as the eligibility
standard, the ACDDE also proposes that ``mission-based entities'' and
Native American Nations be automatically presumed to be eligible for
incubation. Although the ACDDE's incubator proposal and the benefits
that it would provide incubators--namely the award of tax certificates
for stations donated to a mission-based entity or Native American
Nation--are not the same as the incentives that we adopt today, we
share the ACDDE's goal of including diverse participants in our
incubator program. We encourage them to apply and establish clearly in
their certified supplemental statements how their participation in the
incubator program is consistent with the goals of the program. We
recognize that, unlike small, aspiring, and struggling broadcasters,
many mission-based entities and Native American Nations have broader
missions that encompass much more than broadcasting and thus these
entities may be less likely to learn of our incubator program absent
education and outreach by the Commission. Therefore, the Commission
will conduct outreach to help encourage participation in the incubator
program by mission-based entities and Native American Nations that meet
the program's eligibility requirements. We decline, however, to adopt
the proposed automatic presumption of eligibility.
25. Safeguards Associated with Eligibility Standard. We recognize
that the ACDDE has raised concerns about the potential for abuse of an
eligibility standard based on the Commission's new entrant bidding
credit. In particular, the ACDDE references the Commission's
comparative broadcast hearings, long since discontinued, in which the
ACDDE asserts spousal and parent-child relationships were used to
``game the system and defeat minority new entrants.'' The ACDDE
acknowledges, however, that the new entrant definition might be useful
in promoting minority and female broadcast ownership if the Commission
were able to address these ``legacy applicant'' concerns.
26. To address such concerns, we adopt certain safeguards in
conjunction with our two-pronged eligibility standard. As part of the
application process, which is described in greater detail below,
potential incubated entities must demonstrate that they have met both
the numeric and revenue limitation for the preceding three years. Thus,
an entity must not only comply with the eligibility standard at the
time it applies to participate in a qualifying incubation relationship,
but also for the three years prior to its application. NAB proposed a
one-year certification period, which would require that applicants
certify that, for the year prior to applying for participation in the
incubator program, they have met the applicable eligibility standards
in terms of the number of stations owned. Such a certification would,
in NAB's view, help to discourage any potential manipulation of the
program by applicants who dispose of financial interests in additional
broadcast properties prior to applying for participation in the
incubator program. NAB further proposes that program applicants be
required to certify compliance with any revenue eligibility standards
that are adopted. We concur with NAB that a certification requirement
will safeguard our eligibility concerns; however, we find that a longer
3-year period is more likely to deter any fraud or manipulation than a
shorter timeframe.
27. In addition, as part of the incubator program application
process, we will require a potential incubated entity to include in its
application a certified statement attesting that it would be unable to
acquire a station, or continue to operate successfully a station
proposed for incubation that it already owns, absent the proposed
incubation relationship and the funding, support, or training provided
thereby. The Commission, in its discretion, may investigate the
accuracy of the certification if it is made aware of information that
suggests that the potential incubated entity does not, in fact, need
the incubation relationship to purchase and operate a broadcast radio
station. All applicants will further be required to detail any
attributable interests in broadcast stations held by family members
pursuant to FCC Forms 301, 314, and 315, thereby revealing any familial
or spousal relations as part of
[[Page 43778]]
the application process. If at any point the Commission determines that
the certified statement contained misrepresentations, both the
incubated and incubating entities may suffer negative consequences.
Pursuant to the Commission's Character Policy Statement, we would
examine the qualifications of both parties to hold or retain broadcast
licenses.
28. The incubator program is designed to assist those new or small
broadcasters who do not have access to the necessary capital or
technical expertise absent a qualifying incubation relationship. Thus,
an individual who provides evidence of a meager bank account and
attests to limited resources might subsequently be disqualified from
the program, while also being subject to any penalties associated with
making misrepresentations to a federal agency, if it is later
determined that this individual also had access to a large personal
trust fund designed to assist him or her in business ventures.
Likewise, the incubating entity affiliated with this incubation
relationship may find its reward waiver withheld or revoked, depending
on whether it knew, or should reasonably have known, about the
incubated individual's access to such a trust fund or other assets. We
expect that the possibility of negative consequences for both the
incubated and incubating entities for any misrepresentations regarding
the incubated entity's need for the program should serve as a
sufficient deterrent against such behavior.
Qualifying Incubation Relationships
29. In this section, we adopt requirements for qualifying
incubation relationships. As discussed below, we will require that
qualifying incubation relationships provide the incubated entity with
the financial and operational support it lacks (including management
training), that such relationships include an option for the incubated
entity to purchase the incubating entity's equity interest in the
incubated station and/or terminate the incubating entity's creditor-
debtor relationship with the incubated entity, and that the standard
time period for such relationships be three years, with the option to
extend for up to another three years. We also adopt certain safeguards
to ensure that the incubated entity retains control of the incubated
station.
30. The NPRM sought comment on the combination of activities that
should be required to qualify as incubation and whether there should be
any conditions or limitations on the financial and operational aspects
of a qualifying incubation relationship. Noting that proponents had
previously proposed that an incubator program include management or
technical assistance, loan guarantees, direct financial assistance
through loans or equity investment, training, and business planning
assistance, the NPRM asked whether the program should also include
other activities, such as donating stations to certain organizations or
arrangements whereby a new entrant gains operational experience without
first acquiring a station (e.g., pursuant to a Local Marketing
Agreement (LMA)). In addition, the NPRM asked what additional
safeguards the Commission should include in order to ensure that the
incubated station licensee retains control of its station. We conclude
that qualifying incubation relationships are those in which an
experienced AM or FM broadcaster provides an eligible new or small
broadcaster with support that it cannot obtain on its own and that is
essential to its ability to independently own and operate a full-
service AM or FM station. We expect qualifying incubation relationships
to provide the incubated entity with financial and operational support
(including management training) that it needs and that will ultimately
enable the incubated entity to own and operate independently either the
incubated full-service AM or FM station or another full-service AM or
FM station acquired at the completion of the program. We allow parties
the flexibility to tailor each proposed incubation relationship to the
specific needs of the incubated entity while adopting certain
safeguards to ensure that the incubated entity retains full control of
the incubated station.
31. Financial and Operational Support. Commenters that support an
incubator program agree that the incubating entity should provide the
financial and operational support that the incubated entity needs and
that the parties should have flexibility to determine the specific
combination of elements needed to support the incubated station
according to its particular circumstances. Requiring the incubating
entity to provide the financial and operational support that the
incubated entity needs is consistent with the goal of the incubator
program, which is to help address the lack of access to capital and
operational expertise faced by potential new entrants and small
businesses, as discussed above. The record also indicates, however,
that there may be some benefit to requiring an incubated entity to make
a financial contribution to the incubation relationship to solidify its
own commitment towards the endeavor.
32. Rather than dictate specific minimums for the financial and/or
operational support that an incubating entity must provide, we conclude
that the better approach is to give parties the flexibility to tailor
an incubation plan to the needs of the incubated entity, the realities
of the marketplace, and the needs of the community in which the
incubated station operates. For example, an incubated entity that
already owns and operates an AM or FM station will likely need less
financial and operational support than a first-time owner of a
broadcast station. Similarly, an incubated entity that has previously
programmed a station and sold advertising time will likely need less
operational support than a new owner with less experience. Thus, the
financial and operational needs of each incubated entity will likely
differ depending on how much experience it has in broadcasting and its
other assets. It is possible that in some cases, an incubated entity
will just need one form of support or the other--i.e., financial or
operational. For instance, if a broadcaster donates a station to a
mission-based entity, as suggested by the ACDDE, the broadcaster may
not necessarily need to provide any additional financing to fund the
incubation activities. Nevertheless, a broadcaster that chooses to
incubate in this manner would still be required to provide the
incubated station with operational support, as discussed herein, to
enable the mission-based entity to operate the station independently in
the long term.
33. These are just a few examples of how the specific financial and
operational needs of an incubated entity may differ depending on the
circumstances. We emphasize that qualifying incubation relationships
must provide an incubated entity with the level of support needed to
enable the incubated entity to own and operate a full-service AM or FM
station independently at the conclusion of the qualifying incubation
relationship. Depending on the needs of the incubated entity, a
qualifying incubation relationship will likely provide or guarantee a
substantial share of the financing needed to acquire the incubated
full-service AM or FM station and operate it effectively. The
incubation relationship must ensure that the incubated entity has
sufficient financial resources to hire enough employees to oversee the
operation of the station, acquire and produce station programming,
acquire and maintain
[[Page 43779]]
station equipment and facilities, etc. While the incubating entity may
often provide the bulk of the financial resources, we do expect the
incubated entity to contribute a substantial amount of funding to
support the incubated station. We find that requiring the incubated
entity to assume some of the financial risk by making a meaningful
financial contribution to the incubation relationship will provide
further assurance of the incubated entity's commitment to the success
of the relationship. Consequently, as discussed below, we require the
incubated entity to hold a minimum equity interest in the incubated
station consistent with the control test contained in our existing
revenue-based eligible entity definition.
34. For operational support, a qualifying incubation relationship
will likely also provide operational assistance and intensive training
in the following areas: Engineering/technical operations, office
support, sales, programming, and management, including business
planning, finances, and administration. These areas of operational
support encompass those that commenters have proposed and that
proponents have traditionally conceived of as part of a comprehensive
incubator program.
35. The specific components of a qualifying incubation relationship
may vary based on the amount of industry experience an incubated entity
has previously obtained, the incubating entity's existing resources,
and the specific needs of the station to be incubated. Parties may be
able to demonstrate that an incubated entity already has significant
experience in some of the areas listed above and that a qualifying
incubation relationship for that entity requires fewer components.
Regardless of which of these specific components are included in a
particular incubation relationship, the support required by a
qualifying incubation relationship must ultimately enable the incubated
entity to own and operate independently either the incubated station or
another full-service AM or FM station at the conclusion of the
incubation relationship. We expect that an incubation relationship
where both parties have established a plan for the incubated entity to
own and operate independently either the incubated station or a newly
acquired full-service AM or FM station at the end of the incubation
relationship, with progress indicators identified as part of a contract
between the parties, holds the greatest likelihood of success. As
discussed below, after the second year of incubation we will not allow
any brokering or sharing arrangements involving the incubated station
to ensure that the incubated entity demonstrates its ability to operate
the incubated station independently prior to the end of the
relationship.
36. Option to Buy Out Incubating Entity or Obtain Assistance in
Acquiring a New Station. We agree with the ACDDE's proposal that
qualifying incubation relationships must include an option that
provides the incubated entity with the right, but not the obligation,
to purchase the incubating entity's equity interest in the incubated
station, if it holds one. The price and terms of this buy-out option
must be commercially reasonable and must not strongly favor the
incubating entity, and the purchase price must not exceed the station's
fair market value. The fair market value must be determined through
customary valuation methods that rely on audited financial statements
prepared by a certified public accountant, real estate appraisals, and
other information such as market size, total radio dollars available
market-wide, market growth, market competition, and the potential for
signal upgrades, to the extent such information is relevant to
determining the fair market value of the station. At the end of the
qualifying incubation relationship, the incubated entity may decide not
to exercise this option and choose instead to retain its existing
controlling interest in the incubated station. Alternatively, the
incubated entity may choose to sell its interest in the incubated
station and use the proceeds from sale to acquire another full-service
AM or FM station. In that case, we expect the incubating entity to help
the incubated entity identify a full-service AM or FM station to buy
and obtain the financing necessary to purchase the station. Absent a
showing at the end of the qualifying incubation relationship that the
incubated entity holds a controlling interest in the incubated station
or a newly acquired full-service AM or FM station, the incubating
entity will not be eligible to receive a waiver of the Local Radio
Ownership Rule.
37. By requiring an option as described in the preceding paragraph,
we ensure that, before the incubating entity is eligible to receive a
waiver, the incubated entity has acquired independent ownership of a
full-service AM or FM station, consistent with our program goal of
introducing new, independent broadcasters to the industry. Because our
approach will provide multiple paths for an incubated entity to achieve
the goal of independent station ownership, we conclude that our
approach will not unduly direct or limit the incubated entity's
activities following its participation in the program, thereby
preserving options as NAB suggests.
38. Duration of Qualifying Incubation Relationships. We agree with
the ACDDE that in most cases a three-year incubation period will
provide enough time for an incubated entity to develop the skills and
expertise needed to be able to own and operate a broadcast station
independently. NAB offers a similar recommendation, stating that
broadcasters' experience in this arena suggests that the term of an
incubation relationship should be no less than three years but that an
incubated entity may need additional time to obtain the necessary funds
or expertise to be self-sufficient, or that an extension may be needed
due to marketplace or financing conditions. While we agree that an
incubated entity may need more than three years to develop the
requisite operational expertise or secure the financing needed to be
self-sufficient, we believe we must adopt a maximum time limit of six
years for qualifying incubation relationships so that the incubated
entity has an incentive to develop the skills and expertise needed to
operate a full-service AM or FM station independently.
39. As the ACDDE notes, there may also be instances in which an
incubated entity makes exceptional progress towards becoming an
independent owner and operator of the incubated station and seeks to
acquire full equity ownership and independent control of the incubated
station before the incubation term ends. In such circumstances, we will
consider granting requests from parties seeking to conclude their
incubation relationship before the end of the term.
40. Accordingly, we will require that the incubation agreement
provide that the parties must perform the incubation activities for
three years, although the parties may jointly seek to conclude their
incubation relationship early or request a one-time extension of an
additional three years or less, depending on need, upon a showing of
good cause. The three-year time period will begin on the effective date
of the incubation contract. Extension requests must be submitted before
the initial term expires. We direct the Media Bureau (Bureau) to find
good cause to grant an extension where (1) the parties need additional
time to incubate the full-service AM or FM station as discussed below,
or (2) the parties need more time to identify a full-service AM or FM
station for the incubated entity to acquire or additional time for the
incubated entity to close on the pending
[[Page 43780]]
acquisition of a full-service AM or FM station. The parties to the
incubation contract must demonstrate that by the end of the extended
term they will have resolved the issues that resulted in the need for
more time and that the incubated entity will be able to own a full-
service AM or FM station and have demonstrated its ability to operate
such a station independently. Unless otherwise specified by the parties
and approved by the Commission, the terms of the initial incubation
contract will govern the incubation relationship during any Commission-
approved extension period.
41. Independence of Incubated Entity. The incubator program is
designed to provide a ``hands on'' learning process in which the
incubated entity learns by ``doing'' with the benefit of a mentor. To
ensure that the incubated entity derives the maximum benefit from the
training and mentoring provided by the incubating entity, we require
that the incubated entity be the licensee of the incubated station and
maintain ultimate authority over station personnel, programming, and
finances. It is by engaging in station management activities
independently that the incubated entity will best develop its skills.
As NAB notes, ``this level of independence is essential to promoting
the new entrant's business growth and experience.'' Indeed, the goals
of the incubator program, including encouraging new and diverse
ownership of broadcast stations, require that we adopt safeguards to
ensure that the incubated entity retains control of the incubated
station and remains independent of the incubating entity and thus
develops the skills necessary to own and operate the station
independently. While the incubating entity will devote considerable
financial, operational, managerial, and technical resources during the
incubation relationship, the incubated entity must retain control of
the incubated station and remain independent of the incubating entity
to ensure it derives the full measure of intended benefits, in the form
of ``hands on'' learning, during the entire incubation relationship.
42. Below, we adopt certain safeguards to ensure that the incubated
entity has the requisite level of autonomy during the incubation
relationship. As a threshold matter, we require the incubated entity to
satisfy a control test as discussed below, consistent with our revenue-
based eligible entity definition. In addition, we place limits on the
use of brokering and sharing arrangements. We agree with the ACDDE that
JSAs and shared service agreements (SSAs) may be used only to assist
in, and must not be used to substitute for, incubation. Finally, both
to promote the incubated entity's autonomy and to guard from potential
conflicts of interest, we place limits on the ability of individuals to
take on management or oversight positions in both the incubating entity
and incubated entity.
43. First, we require the incubated entity to satisfy the following
control test consistent with our existing revenue-based eligible entity
definition, upon which we are basing the second prong of the
eligibility standard for our incubator program as discussed above.
Specifically, we require that the incubated entity hold more than 50
percent of the voting power of the licensee of the incubated station,
and if the licensee is not a publicly traded company (which will almost
assuredly be the case), a minimum of either 15 percent or 30 percent of
the equity interests, depending on whether someone else owns or
controls more than 25 percent of the equity interests. Both the ACDDE
and NAB agree that the incubated entity must hold more than 50 percent
of the voting power to control the incubated station. The ACDDE,
however, also calls for the incubated entity to hold a minimum equity
interest of 20 percent. Veteran broadcaster Skip Finley proposes that
the Commission limit the investment of the incubating entity to 25
percent, which he argues would not permit control or, standing alone,
create an attributable ownership interest. We conclude that applying
the control test in our existing eligible entity rule will best ensure
that the incubated entity retains control of the incubated station
while still giving the parties some flexibility to establish incubation
relationships that suit their specific needs. Also, as noted above, we
find that it is important for the incubated entity to have some minimum
``skin in the game'' as a sign of its commitment to the success of the
incubation relationship. In this regard, we find that the minimum
equity holding requirements of the control test contained in the
revenue-based eligible entity definition are appropriate. Using these
existing requirements should facilitate both participation in and
administration of the incubator program, as the requirements are
already familiar to licensees. Hence, as discussed more fully below,
all incubation applications must demonstrate that control will rest
with the incubated entity and that the incubated entity meets the
requisite minimum holding level discussed herein.
44. We remind parties that our rules prohibit unauthorized
transfers of control, including de facto transfers of control. Thus,
even if the incubated entity has a controlling interest in the
incubated station, we will also look to whether the incubated entity
maintains control over the station's core operations, including
programming, personnel, and finances, when addressing questions
relating to control.
45. To ensure that the incubated entity retains autonomy over the
incubated station's core operating functions so as to gain the
necessary level of operational expertise, and in light of concerns
raised by the ACDDE and REC Networks, we place certain restrictions on
the use of LMAs, JSAs, and SSAs. Our current attribution standards
recognize that same-market radio LMAs and JSAs above a certain
percentage of the station's broadcast day may confer on the brokering
station the potential to exert a significant degree of influence over
core station operating functions (i.e., programming decisions).
Specifically, our attribution standards regard as attributable
ownership interests same-market radio LMAs and JSAs in which the
brokering station brokers more than 15 percent of the broadcast time or
sells more than 15 percent of the advertising time per week. Given our
rationale for attributing these arrangements and the concerns raised in
the record of this proceeding, we adopt the following safeguards.
46. First, to ensure that the incubated entity retains control of
the programming aired on the incubated station, we prohibit LMAs
involving the incubated station. As defined in our rules, an LMA is any
agreement that involves ``the sale by a licensee of discrete blocks of
time to a `broker' that supplies the programming to fill that time and
sells the commercial spot announcements in it,'' regardless of how the
agreement is titled. Second, to ensure that the incubated entity is
able to gain operational expertise by performing the core operations of
the incubated station, we limit any JSAs or SSAs involving the
incubated station to the first two years of the initial incubation
period. Pursuant to the definitions in our rules, we consider a JSA to
be any agreement with the licensee of a brokered station that
authorizes a broker to sell advertising time for the brokered station,
and we consider an SSA to be any agreement or series of agreements in
which (i) a station provides any station-related services to a station
that is not directly or indirectly under common de jure
[[Page 43781]]
control permitted under the Commission's regulations, or (ii) stations
that are not directly or indirectly under common de jure control
permitted under the Commission's regulations collaborate to provide or
enable the provision of station-related services. While our attribution
standards do not regard SSAs as attributable ownership interests, we
are concerned that allowing these arrangements to be used for the full
duration of an incubation relationship could deprive the incubated
entity of its incentive to gain the operational expertise needed to
operate the station independently at the end of the relationship.
Permitting limited use of JSAs and SSAs appropriately balances
broadcasters' representations that these arrangements can make
incubation more successful with the need to ensure that each incubated
entity learns how to perform essential station functions independently
in order to be viable in the long term as an independent broadcaster.
We do not believe that prohibiting LMAs and restricting the use of JSAs
and SSAs will reduce the utility of our program for incubated entities,
as the record and our experience indicate that new owners of radio
stations need assistance primarily with financing and technical issues,
rather than programming and advertising sales.
47. Moreover, these safeguards will enable the parties to evaluate
whether the incubated entity is prepared to operate independently
before the incubation period has ended and while the incubating entity
remains contractually obligated to provide support. By requiring that
the incubated entity actually obtain or produce programming, sell
advertising, and perform other core operating functions for the
incubated station for at least one full year prior to the expiration of
the incubation relationship, these protections will provide for a more
informed assessment of the incubated entity's progress and any areas
where it needs additional training and support to be viable as an
independent owner and operator of the incubated station or another
full-service AM or FM station. The incubated entity's experience
performing core operating functions may provide a persuasive
justification for extending the incubation relationship if the parties
determine that more time is needed to incubate the station; thus, we
are likely to rely on the parties' assessment that an extension of the
incubation relationship is needed. While we are allowing limited use of
JSAs and SSAs, we emphasize that these agreements, if used, must be
accompanied by proper training in the relevant area(s)--e.g.,
administrative, technical, sales, etc.--covered by any such
arrangement(s) involving the incubated station.
48. Finally, we require that none of the officers, directors,
managing partners, or managing members of the incubated entity hold an
attributable interest in or be an employee of the incubating entity. We
are concerned that allowing an employee or an attributable interest
holder of the incubating entity to serve as an officer, director,
managing partner, or managing member of the incubated entity may
jeopardize the independence of the incubated station given the
significant conflicts of interests that could arise for these
individuals and the significant authority and potential for influence
they would wield over the incubated station. While U.S. antitrust laws
prohibit, with certain exceptions, one individual from serving as an
officer or director of two competing corporations, we believe that an
additional safeguard is needed to address circumstances that may be
exempt from or not covered by the antitrust laws, such as where the two
companies are not competitors, where either company is not a
corporation or does not meet certain financial thresholds, or where an
officer or director of one company is an employee but not an officer or
director of the other company. We note that NAB and MMTC previously
stated that the incubating entity and the incubated entity should not
share common officers or directors. As discussed above, we believe that
an even stronger safeguard is necessary to ensure the independence of
the incubated station.
49. Limitations on Incubation Relationships Per Market. We will
allow each incubating entity to incubate no more than one station per
market, as defined for purposes of determining compliance with the
Local Radio Ownership Rule. This will help ensure that the benefits
that flow from our incubator program reach multiple markets and that
our program is not used to restrict the limited number of local
broadcast radio channels to one or a few radio station owners. While an
established broadcaster that is already in an approved incubation
relationship may not concurrently incubate multiple stations in the
same market, the incubating broadcaster may apply to incubate a
different station in another market. Consistent with the certifications
and other requirements discussed herein, the established broadcaster
would need to demonstrate that it will provide the resources necessary
to incubate the additional station(s). Moreover, a prospective
incubating entity may seek to incubate a station in a market where
there is already an ongoing incubation relationship involving a
different station if the prospective incubating entity is not a party
to or participant in that ongoing relationship.
Benefit To Incubating Entity
50. In this section, we discuss the benefit that an established
broadcaster will be eligible to receive for successfully completing a
qualifying incubation relationship, namely a waiver of the Local Radio
Ownership Rule. We discuss below the terms associated with the waiver
and the standard for granting such a waiver.
51. Acknowledging that proponents of a broadcast incubator program
have previously suggested that incubating entities receive a waiver of
our local broadcast ownership rules in exchange for participating in an
incubator program, the NPRM sought comment on how to structure the
waiver element or other appropriate incentive. In particular, the NPRM
sought comment on whether the waiver should allow the incubating entity
to obtain an otherwise impermissible non-controlling, attributable
interest in the incubated station or to acquire a different station in
the same market or any similarly sized market. Among other things, the
NPRM also sought comment on whether a waiver should be tied to the
success of the incubation relationship, whether the waiver should
continue when the incubator program ends, and whether the waiver should
be transferrable if the incubating entity sells a cluster of stations
that does not comply with the ownership limits at the time.
52. Why a Reward Waiver as Opposed to Another Type of Benefit. We
conclude that our incubator program must provide a meaningful economic
incentive in order to encourage established broadcasters to commit the
substantial financial and other resources needed to incubate a new
entrant successfully as discussed below. We recognize that, without
active participation by incumbent broadcasters, any incubator program
we design will be doomed to fail. Both supporters and opponents of an
incubator program agree that a strong incentive is needed to entice
prospective incubating entities. Indeed, the ACDDE states that an
important goal of the incubator program is to create a sufficient
incentive for established broadcasters to incubate new entrants,
allowing established broadcasters to
[[Page 43782]]
grow their businesses while sharing with others the opportunities they
may have enjoyed earlier in their careers.
53. There is, however, a divergence of views over what would be the
best incentive. According to the broadcasters, a waiver of the local
broadcast ownership rules is the appropriate incentive. The ACDDE, on
the other hand, advocates for two forms of tax relief: A tax
certificate entitling the incubating entity to defer capital gains
taxes on the sale of its interest in the incubated station upon
reinvestment in a comparable property, and a tax credit of an amount
equal to the appraised fair market value of the station if the
incubating entity donates the station to a mission-based entity or a
Native American Nation. REC Networks proposes a regulatory fee
exemption.
54. We conclude that allowing an incubating entity to seek a waiver
of the Local Radio Ownership Rule, including the AM/FM subcap (reward
waiver), in exchange for successfully completing a qualifying
incubation relationship will provide a meaningful economic incentive to
established broadcasters and thereby encourage them to incubate a new
entrant. Those broadcasters who have the experience and resources
needed to incubate a new or small broadcaster successfully are likely
to be longtime station group owners that may be at or near the local
ownership limits in one or more markets. Consequently, based on the
record in this proceeding, we expect that a waiver of the Local Radio
Ownership Rule will be sufficiently attractive to these prospective
incubating entities to entice them to participate in the incubator
program. While some commenters assert that granting waivers of local
ownership rules to incubating entities could harm rather than promote
ownership diversity, we find that the record demonstrates a waiver of
the Local Radio Ownership Rule is the benefit within our authority that
will best provide a sufficient incentive for established broadcasters
to participate in our incubator program. In establishing requirements
for the use of reward waivers under our incubator program for full-
service AM and FM stations, we balance our goal of preserving our local
radio ownership limits with the need to provide enough flexibility to
foster participation in our program by incubating entities. We conclude
that the requirements we adopt herein regarding the use of reward
waivers will help ensure that they do not work against our local radio
ownership limits and that our incubator program preserves a market
structure that facilitates and encourages new entry into the local
media market, as discussed below.
55. We decline to rely on regulatory fee exemptions or tax
incentives to encourage participation in our incubator program. With
regard to a regulatory fee exemption, we agree with the 22 ACDDE
Members who filed reply comments that a six-to-twelve-month exemption
of this sort would not provide a sufficient incentive for established
broadcasters to incubate new entrants. In addition, we note that the
Commission has previously found that it does not have the authority to
waive or defer fees categorically.
56. As for tax certificates and tax credits, we agree that they can
provide an incentive for established broadcasters to enter qualifying
incubation relationships and that some believe tax certificates have
been successful in the past in bringing new and diverse entrants to the
broadcasting industry, but we are unable to use such measures to
encourage participation in our incubator program absent authorization
from Congress. Since the prior tax certificate program was eliminated
in 1995, supporters have from time to time advocated for the return of
the program. Indeed, the Commission itself has previously supported the
effort to reinstate tax certificates as a means for increasing
ownership diversity. To date, however, those efforts have been
unavailing. Thus, rather than indefinitely delaying implementation of
an incubator program pending Congressional introduction and passage of
the necessary tax legislation, we find that it is in the public
interest to proceed with the program we implement today, which will
provide a meaningful incentive for established broadcasters to incubate
new entrants that genuinely need financial and/or operational support
to become independent owners. Of course, following our action today,
Congress would be able to adopt legislation either authorizing or
mandating the use of tax certificates and tax credits in our incubator
program, either in addition to or in lieu of reward waivers, should it
so choose.
57. Timing and Duration of Reward Waiver. The reward waiver will be
available to the incubating entity after the successful completion of a
qualifying incubation relationship. The process for determining whether
an incubation relationship has been successful is described more fully
below. While NAB proposes that the reward waiver be available to the
incubating entity prior to the end of the incubation relationship, we
believe that an incubating entity will have a much stronger incentive
to cultivate the incubated entity as an independent broadcaster if the
reward waiver is available to the incubating entity only after it
successfully completes the qualifying incubation relationship. To use
its reward waiver, the incubating entity must seek to acquire a full-
service AM or FM station and file the waiver request within three years
after the successful conclusion of the qualifying incubation
relationship. We believe it is necessary to require that each reward
waiver be used in proximity to the associated incubation relationship
in order to aid our tracking and recordkeeping, and so the Commission
is able to consider the availability of such benefits in the context of
ownership rules and competition in radio markets close in time to when
the incubation relationship occurs. We also believe that the incubating
entity will have every incentive to acquire a full-service AM or FM
station using the reward waiver as quickly as possible following the
successful conclusion of the qualifying incubation relationship.
Therefore, we reject NAB's assertion that an unused reward waiver
should not expire.
58. We do, however, recognize that retaining the value of a station
cluster that includes a reward waiver is an important part of the
benefit afforded to an incubating entity. Consequently, as long as the
cluster that is initially formed using the reward waiver is transferred
intact, we will permit the waiver to be transferred with the station
group. Permitting transfer of the initial cluster preserves any
increase in value achieved by the incubating entity for its efforts in
bringing a new broadcaster into the market. We do not, however, permit
the waiver to move separately from the station cluster, as we also seek
to ensure that those who have not advanced diversity via participation
in the program do not receive a windfall. Consequently, the waiver will
continue in effect as long as the cluster remains intact. Further, a
single party may not hold the benefit of more than one waiver in a
market granted under our incubation program, meaning that a station
cluster that exceeds the applicable ownership rule by virtue of an
incubation reward waiver may not be transferred to an entity that
already holds such a waiver in the market. In addition, we will permit
the incubating entity to use its reward waiver to engage in an in-
market station swap, which will not impact ownership diversity in the
market or allow a broadcaster to obtain a reward waiver without making
a
[[Page 43783]]
countervailing contribution to ownership diversity.
59. Markets Where Reward Waiver May Be Used. We will allow an
incubating entity to use a reward waiver to acquire an otherwise
impermissible attributable interest to: (i) Purchase a full-service AM
or FM station located in the same market as the incubated station, (ii)
purchase a full-service AM or FM station located in a market that is
comparable to the market in which the incubation occurred, as defined
below, or (iii) if the incubated entity chooses not to exercise its
option to purchase the incubating entity's non-controlling interest in
the incubated station, to retain an otherwise impermissible
attributable interest in the incubated station after the incubation
relationship ends (including acquiring a controlling interest in the
incubated station if the incubated entity acquires a controlling
interest in another full-service AM or FM station). An incubating
entity that uses a reward waiver in a comparable market may also choose
to retain its non-controlling attributable interest in the incubated
station if permitted by our ownership rules. Commenters that support
the use of waivers in our incubator program agree that we should allow
an incubating entity to use a reward waiver in a market other than the
incubation market, and we believe this will expand opportunities for
incubation by not limiting participants only to markets where the
incubating entity is at or near the applicable local radio ownership
limits. To preserve competition in even the smallest markets, however,
we will not allow an incubating entity to use a reward waiver in a
market where the waiver would result in the incubating entity holding
attributable interests in more than 50 percent of the full-service,
commercial and noncommercial radio stations in a market. Thus,
consistent with our existing Local Radio Ownership Rule, an incubating
entity will not be able to hold an attributable interest in more than
50 percent of the full-service, commercial and noncommercial radio
stations in a market unless the combination of stations comprises not
more than one AM and one FM station. Given our decision to allow a
reward waiver to be used only if the incubating entity will not hold an
attributable interest in more than 50 percent of the full-service,
commercial and noncommercial radio stations in a market, we do not
think it is necessary to adopt a cap on the in-market revenue share of
station combinations resulting from the use of a reward waiver as one
commenter proposes. We believe that a cap on the in-market revenue
share of station combinations, which is more likely to change from year
to year, would not be as effective as a cap on the share of stations
that an incubating entity may own in a reward market.
60. We will consider a market to be ``comparable'' to the market
where the incubation relationship occurred if, at the time the
incubating entity seeks to use the reward waiver, the chosen market and
the incubated market fall within the same market size tier under our
Local Radio Ownership Rule and the number of independent owners of
full-service, commercial and noncommercial radio stations in the chosen
market is no fewer than the number of such owners that were in the
incubation market at the time the parties submitted their incubation
proposal to the Commission. Restricting an incubating entity that uses
a reward waiver to purchase a station in another market to a comparable
market will help ensure that the local impact of the reward waiver on
the number of independent owners is similar to that of the incubated
station in its market. Thus, it balances our desire to limit the impact
of any potential consolidation that could result from the use of a
reward waiver with our goal of expanding broadcast station ownership
opportunities for small businesses and potential new entrants by
allowing an incubating entity to incubate in markets other than those
in which it is at or near the applicable local radio ownership caps. To
the extent NAB seeks even greater flexibility and proposes that we
permit an incubating entity to use a reward waiver in any market it
wishes, we reject that element of NAB's proposal. For the reasons
discussed above, we believe that the better approach is to require that
a reward waiver be used either in the same market where the incubation
relationship occurred or in a comparable market.
61. A group of commenters contend that our definition of comparable
market could result in applying a reward waiver in a much larger market
than that in which incubation occurred and propose limiting the
definition of a ``comparable market'' to those markets ranked ``5 Up/5
Down'' from the incubation market based on Nielsen's population
rankings. We conclude, however that the proposed definition would not
necessarily lead to incubation and use of waivers in markets that are
truly more ``comparable'' with respect to the number of stations and
independent owners than the definition we adopt above. As an initial
matter, we note that the Nielsen rankings are based on the population
of the relevant market, not on the number of stations in a given market
or the number of independent owners. Thus, the markets five up or five
down from the incubation market might not have the same number of
stations or independent owners as the incubation market--the very
factors we find most relevant in assessing the diversity of the market.
For example, according to Nielsen data from Fall 2017, Baltimore is
ranked as market 21 and St. Louis is ranked as market 23, yet Baltimore
has only 35 stations, while St. Louis has 68 stations, resulting in the
markets being subject to different ownership caps under our rules. In
crafting our standard, we focused primarily on preventing the potential
for ownership consolidation in a market with fewer stations and
independent owners than the market in which the incubation relationship
added a new entrant. In addition, we note that ownership interests and
circumstances vary widely among incumbent broadcasters, and it is not
self-evident that an incubating entity will seek to use a reward waiver
in the market with the largest population possible. Rather, we expect
the decision will be driven by where the group owner faces ownership
restrictions or wishes to grow a successful cluster. Finally, it is
possible that the incubating entity does not own any stations in
markets that are within five up or five down from the incubation
market, in which case it would have no flexibility to use the reward
waiver. In this regard, we agree with NAB that the ``5 Up/5 Down''
proposal is ``unduly restrictive'' and could have the effect of
inhibiting participation by potential incubating broadcasters. For all
of the foregoing reasons, therefore, we decline to adopt the ``5 Up/5
Down'' proposal.
62. While we believe that incubating entities will have no
difficulty using reward waivers under our market comparability
standard, we may allow an incubating entity to use a reward waiver in a
market that does not meet our comparability standard if, due to changed
circumstances following the parties' submission of their incubation
proposal, there is no longer a comparable market in which the
incubating entity is at the local radio ownership cap or AM/FM subcap
and the incubating entity demonstrates why doing so is consistent with
the public interest. However, we anticipate that incubating entities
will consider our market comparability standard when choosing a
candidate to incubate given
[[Page 43784]]
our decision to allow an incubating entity to use its reward waiver in
a market that meets that standard.
63. We will allow an incubating entity that receives multiple
reward waivers under our program (as a result of incubating multiple
new entrants) to use no more than one reward waiver per market. This,
as well as our decision above to grant an incubating entity a reward
waiver only after the incubating entity successfully completes a
qualifying incubation relationship and only in the same market as the
incubated station or a comparable market, will help ensure that reward
waivers do not work against our local radio ownership limits. Indeed,
our local radio ownership limits promote competition and viewpoint
diversity by ensuring a sufficient number of independent radio voices
and by preserving a market structure that facilitates and encourages
new entry into the local media market. The safeguards that we adopt
today will help ensure that our incubator program preserves such a
market structure while further promoting the entry of new and diverse
voices in broadcast radio.
64. Temporary Waiver for Purposes of Qualifying Incubation
Relationships. In some cases, a prospective incubating entity may
already hold attributable interests in the maximum number of radio
stations permitted by our Local Radio Ownership Rule in the market
where it seeks to engage in a qualifying incubation relationship. To
ensure that, in such circumstances, a prospective incubating entity may
still participate in our program, we will grant such an incubating
entity a temporary waiver of the Local Radio Ownership Rule (including
the AM/FM subcap) if the incubation relationship would result in the
incubating entity holding an otherwise impermissible, non-controlling
attributable interest in the incubated station. If such a waiver is
necessary, the Bureau will consider and approve such a waiver when
reviewing the incubation proposal. This temporary waiver will expire
when the incubation relationship ends. At that point, if the incubating
entity has met all its obligations under the approved incubation
relationship and demonstrates that the relationship was successful as
discussed below, the incubating entity will be able to obtain a reward
waiver as discussed herein.
65. Criteria for Granting a Waiver. We will review requests for
both the reward and temporary waiver pursuant to Sec. 1.3 our rules,
which requires a showing of ``good cause'' and applies to all
Commission rules. With regard to the temporary waiver, the incubating
entity and incubated entity must demonstrate, as described in greater
detail below, that they are both eligible for, and intend to engage in,
a qualifying incubation relationship. To receive a reward waiver, the
incubating entity must demonstrate that it has completed a successful
qualifying incubation relationship. Specifically, the incubating entity
must certify (i) that it complied in good faith with its incubation
agreement, as submitted to and approved by the Bureau, and the
requirements of our incubator program discussed herein; and (ii) either
that the incubated entity holds a controlling interest in the incubated
station or a newly acquired full-service AM or FM station, or if the
incubated station was a struggling station, that the incubation
relationship has resolved the financial and/or operational difficulties
that the owner of the previously struggling station faced prior to
incubation and sought to remedy through the incubation relationship. If
these criteria are met, we will consider the qualifying incubation
relationship to be successful even if the incubating entity retains a
non-controlling attributable interest in the incubated station when the
relationship concludes, provided that the incubating entity's interest
in the station complies with the applicable ownership limits or is
permissible pursuant to a waiver of the local radio ownership limit
(including the AM/FM subcap). After the incubating entity demonstrates
that it has completed a successful qualifying incubation relationship
as discussed herein, the incubating entity need not engage in any other
actions to receive a reward waiver, beyond seeking to use the waiver in
a comparable market and otherwise being in compliance with Commission
rules and requirements, and there will be a rebuttable presumption that
granting the waiver is in the public interest.
66. We find that ``good cause'' exists to grant these temporary and
reward waivers because doing so yields benefits to competition and
ownership diversity in a local market that outweigh the impact on local
competition in the market in which a waiver is granted. By tying grant
of the reward waiver directly to station ownership by a new or
previously struggling entity and restricting the use of reward waivers
as discussed herein, any consolidation resulting from the use of a
reward waiver will be limited and accompanied by the establishment of a
new, or stronger, broadcaster in the same or a comparable market.
Indeed, it is our determination herein that the public interest would
not be served by strictly applying the Local Radio Ownership Rule
(including the AM/FM subcaps) where an established broadcaster that
engages in a qualifying incubation relationship seeks a waiver of the
rule as discussed in this Order. While in the context of Sec. 1.3
waiver requests, the Commission has considered showings of undue
hardship, the equities of a particular case, or other good cause, in
this particular context an applicant is required to make a narrower
showing as discussed herein. If the applicant demonstrates that it has
engaged in a successful qualifying incubation relationship and that
grant of a waiver is consistent with the goals of our incubator
program, there will be a rebuttable presumption that granting a waiver
in the incubation market or a comparable market is in the public
interest.
Procedures for Filing, Reviewing, and Monitoring Compliance of
Incubation Relationships
67. Before the parties commence a qualifying incubation
relationship, the Bureau must determine that the relationship is
designed to help a new entrant, small broadcaster, or struggling
broadcaster gain the ability to own and operate a full-service AM or FM
station independently and that the relationship otherwise qualifies for
the program. This section lays out the process for submission and
review of incubation relationship proposals and how compliance will be
monitored during the incubation relationship. In addition, this section
describes how the Bureau will determine whether a particular incubation
relationship has been successful, such that the incubating entity is
eligible to seek a reward waiver. We direct the Bureau to implement
these procedures.
68. As a threshold matter, we note that all incubation proposals
must be based on prospective relationships. Incubating broadcasters
will derive a significant benefit by receiving the reward waiver.
Consequently, all incubation proposals must demonstrate a strong
likelihood of promoting the ultimate program goal of bringing greater
ownership diversity to the broadcast sector. This will be done by
either enabling the incubated entity to own and operate a newly
acquired full-service AM or FM radio station independently, or by
improving the incubated entity's ability to retain and operate
independently the struggling station it currently owns. To ensure that
a proposed incubation relationship comports with the program's goal of
broadening ownership diversity, we require prior Bureau review of the
[[Page 43785]]
proposal with an eye towards its adherence to the program requirements
described in the instant order.
Bureau Review of Incubation Proposals
69. Process for Submitting Incubation Proposals. There are several
ways in which an incubation proposal might come before the Bureau. We
expect that most incubation proposals will accompany an assignment,
transfer of control, or construction permit application. We direct the
Bureau authority to modify the FCC Forms, including instructions and
worksheets, as needed to enable applicants to indicate on the relevant
FCC Form that the submission involves an incubation proposal. Such
applications seeking to transfer, assign, or obtain an authorization
are subject to public notice and petitions to deny and informal
objections under the Commission's rules, and in addition to reviewing
such applications pursuant to its routine review processes, the Bureau
will review accompanying incubation proposals and approve or reject
such proposals. As part of this review, the Bureau will also assess
whether any request for temporary waiver of the ownership rules in the
incubated market should be granted to permit the incubation
relationship.
70. For any incubation relationship that does not trigger a FCC
Form filing requirement, the proposal must be filed as a Petition for
Declaratory Ruling in the Incubator docket, MB Docket No. 17-289, in
the Commission's Electronic Comment Filing System (ECFS). Just as in
the application context, if a temporary waiver of the ownership rules
is needed for the incubation relationship, then the waiver request must
accompany the Petition for Declaratory Ruling. The Bureau will act on
such petitions and temporary waiver requests pursuant to its standard
processes. As described above, any temporary waivers needed for the
incubator program, irrespective of whether the proposal comes via an
application or a Petition for Declaratory Ruling, will be granted (or
denied) pursuant to Sec. 1.3 of the Commission's rules.
71. The key factors guiding review of an incubation proposal will
be whether: (1) The potential incubated entity has the wherewithal to
obtain the necessary financing and support, absent the proposed
incubation relationship; (2) the proposal provides for an incubation
relationship addressing the needs that the incubated entity has (e.g.,
financial, technical, managerial, etc.) to be able to own and operate a
full-service AM or FM station independently after the relationship has
ended; and (3) the incubated entity retains de jure and de facto
control over the station to be incubated. To assess whether the
incubation proposal meets these factors, the Bureau will review two
forms of documentation: (1) A written incubation contract between the
parties; and (2) a certified statement that the incubated and
incubating entities must each submit. These submissions will be the
Bureau's best indications of whether the proposed incubation
relationship is likely to promote the program's goals of increasing
diverse station ownership by enabling a qualified incubated entity to
own and operate a full-service AM or FM station independently. The
Bureau, however, may also require the applicants to submit additional
information if needed to determine whether the proposed incubation
relationship is likely to promote the goals of our incubator program as
discussed herein.
72. Written Incubation Contract. The incubation proposal must
contain a written contract between the parties memorializing all
aspects of the incubation relationship, so as to demonstrate both
compliance with program requirements (e.g., that the incubated entity
has both de jure and de facto control) and the steps the parties will
take to put the incubated entity in a position to own and operate a
full-service AM or FM radio station independently.
73. The contract must detail the level of equity interest each
party will bring to the relationship. The incubated entity must show
that it is providing a minimum equity stake as detailed above. The
contract must also detail the parties' plan to unwind the incubation
relationship and the steps they will take to enable the incubated
entity to own and operate a full-service AM or FM station
independently, be it the station that is the subject of incubation or
another station to be acquired upon conclusion of the incubation
relationship. The contract must provide the incubated entity with the
option to buy out the incubating entity's non-controlling interest in
the incubated station. As described above, the incubated entity can
choose not to pursue this option and maintain the existing relationship
along with its controlling interest. Alternatively, the incubated
entity may choose to sell its interest in the incubated station and use
the proceeds from the sale to acquire another full-service AM or FM
station. In that case, we expect the incubating entity to help the
incubated entity identify a full-service AM or FM station to buy and
obtain the financing necessary to purchase the station. The contract
must also provide for this alternative option. We require the contract
to contain both options because we recognize that the incubated entity
may not be well-positioned at the outset of the relationship to
determine which approach best suits its long-term business interests in
the broadcast sector. The incubated entity's anticipated growth
trajectory may change as a result of the incubating entity's mentorship
and introduction to capital sources that may have been previously
unavailable. Indeed, we hope this will be the case. Consequently, while
still ensuring that the incubated entity ultimately independently owns
and operates a radio station, we do not mandate a pre-determined
mechanism for how this goal will be achieved. As described below,
however, the parties must notify the Bureau no later than six months
before the end of the contract term which option they intend to pursue.
74. Certified Statements. Along with a written agreement detailing
the terms of the incubation relationship and the rights and obligations
of each party, the incubating and incubated entities must each file a
certified statement describing, among other things, each party's
background, qualifications, and resources, and how these will enable
the party, via the incubation relationship, to promote the goals of the
incubator program--i.e., enabling a new entrant or small business to
own and operate a full-service AM or FM station independently or to
place a previously struggling station on a firmer footing. As part of
the statement, the incubated entity must certify that its annual
revenues for the previous three years did not exceed the SBA revenue
standard and that during the preceding three years it held attributable
interests in no more than three full-service AM and FM stations
(listing the stations, community of license, and facility IDs of each),
and that it did not hold an attributable interest in any TV stations,
consistent with the eligibility standards adopted above. In addition,
if the incubation proposal is being filed as a Petition for Declaratory
Ruling, the potential incubated entity must make the same
certifications and attribution disclosures that it would have had to
submit were it filing the FCC Form 301, 314, or 315. We also require a
potential incubated entity to include in its application a certified
statement laying out why it is unable to acquire a controlling interest
in the incubated station, or successfully operate the station, absent
the proposed incubation
[[Page 43786]]
relationship and the funding, support, or training provided thereby.
75. Likewise, the incubating entity must certify that it has the
resources and experience necessary to help the incubated entity become
an independent owner and operator of the incubated station or another
full-service AM or FM station and that it will devote those resources
and experience to achieve that goal. Dedicating executive and
management personnel to provide training, strategic advice, and other
support to the incubated entity may help demonstrate that an
experienced broadcaster is committed and has the resources necessary to
incubate a new entrant successfully. Longtime ownership of radio
stations that are in the same service as the incubated station and in
multiple markets is another indicator of the owner's potential for
success as an incubator. Indeed, due to their resources and experience,
station group owners may be in a particularly good position to help
persons not only become radio licensees but also succeed in radio
station ownership. In addition, the incubated and incubating entities
must both certify that the incubated entity will maintain operational
and management control of the station, including decisions regarding
programming, personnel, and finances. These submissions will enable the
Bureau to verify that the incubated entity is a bona fide entity,
without links to the incubating entity absent the incubation
relationship, and truly needs the resources of the incubator program.
76. The goal of this program is to bring new voices to the local
radio market and to stabilize those small broadcasters that might
otherwise drop out of the market. While recognizing that the waiver the
incubating entity will receive at the end of the incubation
relationship is the best way to encourage participation in our program
by established broadcasters, we do not grant these waivers lightly. The
submissions described above provide an additional opportunity to ensure
that both the incubating and incubated entities are legitimate
participants in the program. If the Commission determines at a later
date that either submission contained a misrepresentation this could
lead to a withholding or revocation of a waiver, as well as referral to
the Enforcement Bureau for further action.
Compliance During Term of Incubation Relationship
77. Once the incubation contract has gone into effect, on the
annual anniversary of the effective date of the contract, the
incubating and incubated entities must jointly file a certified
statement describing the incubation activities during the preceding
year and how these comport with the commitments laid out in the
incubation contract. The statement must describe the progress being
made towards the ultimate goal of station ownership, or greater
stability regarding current ownership, by the incubated entity. This
annual certified statement must be filed both in the Incubator docket
via ECFS and the parties' public inspection files, so as to enable
public review. These statements will be the primary mechanism by which
the Commission and the public can gauge compliance with the terms of
the incubation contract and progress towards the goal of independent
station ownership. If, upon review of an annual statement, the Bureau
has questions or concerns, staff may follow up with the parties.
78. No later than six months before the contract termination date,
the parties must make a submission to the Commission stating which
option for station ownership the incubated entity plans to pursue at
the conclusion of the relationship--e.g., indicating that the incubated
entity intends to buy out the incubating entity's non-controlling
interest in the incubated station or that the parties will work
together to identify and secure another full-service AM or FM station
for the incubated entity to acquire. Accordingly, during the remainder
of the contract period, both parties can devote some resources towards
effectuating the station ownership goal. For example, both parties may
need to commit some resources towards finding a new station or
obtaining financing for the incubated entity or both.
Final Bureau Review and Grant of Reward Waiver to Incubator
79. At the end of the three-year contract period, the parties must
again file a joint certified statement reporting on the previous year's
incubation activities. This submission will, however, also state
whether the incubated entity has acquired a new station or will
continue to retain its controlling interest in the incubated station,
either with or without pursuing its option to buy out the incubating
entity's non-controlling interest. If the goal of the incubation
relationship was to stabilize a previously struggling station, this
third annual filing must describe the current status of the incubated
station and whether it is now on a firmer footing. In the event of a
shorter incubation relationship due to exceptional progress on the part
of the incubated entity in becoming an independent owner and operator
of a full-service AM or FM station, the same filing requirement will
apply, only the filing may be made before the third year. The Bureau
will have 120 days after the filing of this statement to review the
submission and ensure that the expectations for the incubation
relationship and all program requirements were met. The Bureau may
extend the review period if needed. If the incubation relationship
required a temporary waiver of the ownership cap and the incubating
entity plans to use its reward waiver to retain an otherwise
impermissible attributable interest in the incubated station, including
buying out the incubated entity's interest in the incubated station,
then the incubating entity must file a waiver request along with the
final joint statement. The temporary waiver will remain in effect
during the Bureau's review period. In the event that the incubation
relationship is deemed unsuccessful and the incubating entity cannot
receive a reward waiver, the Bureau will extend the temporary waiver
for a set time period as necessary to give the parties an opportunity
to unwind the relationship.
80. In the absence of any negative determination from the Bureau by
the end of the 120-day review period, following submission of a final
joint statement, the incubating entity will then have three years in
which to submit a request to use the presumptive reward waiver. The
request must be submitted with a copy of the Bureau document(s) that
approved the qualifying incubation relationship, including any
document(s) that approved an extension of the original term as
discussed above. If the incubation relationship proposal was submitted
and approved as part of a Form 301 construction permit application or a
Form 314 or Form 315 assignment or transfer of control application, the
waiver request must also include the file number of the approved
application. As described above, there is a rebuttable presumption that
granting a reward waiver is in the public interest if the incubating
entity seeks the waiver for either the incubated market or a comparable
market and the incubating entity is otherwise in compliance with the
Commission's rules and requirements. If the incubating entity wishes to
use its reward waiver to purchase the incubated station, it must file
its application seeking an assignment of license or transfer of control
application contemporaneously with its final annual
[[Page 43787]]
certified statement. It is necessary for the incubating entity to do
this to ensure that the ownership limits in the incubated market are
not violated when the temporary waiver for the incubation period
expires.
81. While incubation contracts are intended to last no longer than
three years, parties may extend the incubation relationship for one
additional period of up to three years subject to Bureau approval. For
example, if the parties believe they need an additional six months
beyond the initial three-year period to complete a new station purchase
then they must seek an extension for six months. Parties that wish to
extend their relationships must file this request no later than 120
days before the end of the initial three-year contract period. The
incubating entity, however, may only seek a reward waiver, either for
the incubated market or another market, after the successful completion
of the incubation relationship, whatever the extended time period is--
be it six months or three years. If, as part of the extension, there
are any revisions to the initial incubation contract, the proposed
revised contract must be filed along with the extension request. The
Bureau will have 120 days to review the revised contract and request
for extension. Absent Bureau action to the contrary within the 120-day
period, the revised contract and request for extension time will be
deemed effective, assuming they do not involve an assignment or
transfer of control of a station. If there are no changes in the
ownership/attribution/control structure of the agreement (e.g.,
incubator's control over the incubated station has not increased), it
is unlikely to raise concerns for the Bureau. As a general matter, the
requirements for the standard three-year contract period will apply
during this extended period, but there may need to be some
modifications depending on the circumstances. For example, an annual
filing requirement will not make sense for a three-month extension. The
Bureau will notify the parties of any such modifications.
III. Procedural Matters
82. Paperwork Reduction Act Analysis. This Order contains
information collection requirements subject to the Paperwork Reduction
Act of 1995 (PRA), Public Law 104-13. The requirements will be
submitted to the Office of Management and Budget (OMB) for review under
Section 3507(d) of the PRA. OMB, the general public, and other Federal
agencies will be invited to comment on the information collection
requirements contained in this proceeding. The Commission will publish
a separate document in the Federal Register at a later date seeking
these comments. In addition, we note that, pursuant to the Small
Business Paperwork Relief Act of 2002, Public Law 107-198, see 44
U.S.C. 3506(c)(4), the Commission previously sought specific comment on
how it might further reduce the information collection burden for small
business concerns with fewer than 25 employees. We have described
impacts that might affect small businesses, which includes most
businesses with fewer than 25 employees, in the Final Regulatory
Flexibility Act Analysis.
Final Regulatory Flexibility Analysis
83. As required by the Regulatory Flexibility Act of 1980, as
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was
incorporated in the Notice of Proposed Rulemaking (NPRM) in this
proceeding. See 83 FR 774 (Jan. 8, 2018). The Commission sought written
public comments on proposals in the NPRM, including comment on the
IRFA. The Commission received no comments on the IRFA. The present
Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.
84. The Report and Order adopts requirements that will govern the
incubator program that the Commission previously decided to adopt to
support the entry of new and diverse voices into the broadcasting
industry. The incubator program seeks to provide established
broadcasters with an inducement in the form of an ownership rule waiver
to invest the time, money, and resources needed to facilitate broadcast
station ownership by new and diverse entrants. Through the incubator
program, established broadcasters (i.e., incubating entities) will
provide new entrants or small broadcasters (i.e., incubated entities)
with the training, financing, and access to resources that would be
otherwise unavailable to these entities. At the end of the incubation
relationship, the incubated entity will either own a broadcast station
or will retain ownership of a previously struggling station, now set on
firmer footing. In return for its support, the incubating entity will
receive a waiver of the Commission's Local Radio Ownership Rule that
the incubating entity can use either in the incubated market or in a
comparable market as discussed in the Report and Order, within three
years of the successful conclusion of a qualifying incubation
relationship.
85. To qualify for participation in the incubator program, the
parties must seek prior approval from the Commission that their
proposed incubation relationship comports with the program
requirements. The key factors guiding review of incubation proposals
will be whether the potential incubated entity would have been able to
obtain the necessary financing and support absent the proposed
incubation relationship; whether the proposal provides the incubated
entity with adequate financing, training, and support over the course
of the incubation relationship to ensure its success; and whether the
incubated entity retains de jure and de facto control over the station
to be incubated. The standard term required for a qualifying incubation
relationship will be three years, but the relationship may be extended
up to an additional three years.
86. Qualifying incubation relationships must provide the incubated
entity with an option to purchase the incubating entity's equity
interest in the incubated station, if it holds one, for a price that is
no more than fair market value and/or terminate the incubating entity's
creditor-debtor relationship with the incubated entity at the
conclusion of the incubation relationship. At the end of the qualifying
incubation relationship, the incubated entity may decide not to
exercise this option and choose instead to retain its existing
controlling interest in the incubated station. Alternatively, the
incubated entity may choose to sell its interest in the incubated
station and use the proceeds from the sale to acquire another full-
service AM or FM station. In that case, the Commission expects the
incubating entity to help the incubated entity identify a full-service
AM or FM station to buy and obtain the financing necessary to purchase
the station. Absent a showing at the end of the qualifying incubation
relationship that the incubated entity holds a controlling interest in
the incubated station or a newly acquired full-service AM or FM
station, the incubating entity will not be eligible to receive a waiver
of the Local Radio Ownership Rule. If the goal of the incubation
relationship was to stabilize a previously struggling station, then the
joint certified filing must describe the status of the incubated
station and whether it is now on a firmer footing. If an incumbent
broadcaster successfully incubates a new, small entrant, or a small
struggling station owner, as part of the incubator program, it will be
eligible to receive a waiver of the Local Radio Ownership Rule
following the conclusion of the qualifying incubation relationship.
Such a waiver can be used for up to three
[[Page 43788]]
years after the successful completion of the qualifying incubation
relationship and must be used in either the incubated market or a
comparable radio market, as discussed in the Report and Order. To
receive a reward waiver, the incubating entity must demonstrate that it
has completed a successful qualifying incubation relationship.
Specifically, the incubating entity must certify (i) that it complied
in good faith with its incubation agreement, as submitted to and
approved by the Bureau, and the requirements of our incubator program
discussed herein; and (ii) either that the incubated entity holds a
controlling interest in the incubated station or a newly acquired full-
service AM or FM station, or if the incubated station was a struggling
station, that the incubation relationship has resolved the financial
and/or operational difficulties that the owner of the previously
struggling station faced prior to incubation and sought to remedy
through the incubation relationship.
87. In addition, to the extent the incubating entity needs a waiver
of the Local Radio Ownership Rule to engage in a qualifying incubation
relationship (for example, if the incubating entity is already at the
applicable local radio ownership limit in the market and its investment
in the incubated station would exceed that limit), we will grant the
incubating entity a temporary waiver of the Local Radio Ownership Rule
(including the AM/FM subcap) to allow the incubating entity to acquire
an otherwise impermissible noncontrolling, attributable interest in the
incubated station for the duration of the qualifying incubation
relationship. With regard to the temporary waiver, the incubating
entity and incubated entity must demonstrate that they are both
eligible for, and intend to engage in, a qualifying incubation
relationship, as discussed in the Report and Order.
88. The Report and Order implements a long overdue mechanism to
address the primary barriers to station ownership by new and diverse
entities: lack of access to capital and the need for technical and
operational experience. In implementing this incubator program, the
Commission's expectation is that each successful incubation
relationship will result in the acquisition of a broadcast radio
station by a new entrant or small business, or the preservation of an
existing, but struggling, small broadcaster. Accordingly, successful
implementation of this incubator program will promote ownership
diversity by fostering new entry in the broadcasting sector by
entrepreneurs and small businesses, including those owned by women and
minorities.
Summary of Significant Issues Raised by Public Comments in Response to
the IRFA
89. The Commission received no comments in response to the IRFA.
Response to Comments by the Chief Counsel for Advocacy of the Small
Business Administration
90. Pursuant to the Small Business Jobs Act of 2010, which amended
the RFA, the Commission is required to respond to any comments filed by
the Chief Counsel for Advocacy of the Small Business Administration
(SBA), and to provide a detailed statement of any change made to the
proposed rules as a result of those comments. The Chief Counsel did not
file any comments in response to the proposed rules in this proceeding.
Description and Estimates of the Number of Small Entities to Which the
Rules Will Apply
91. The RFA directs agencies to provide a description of and, where
feasible, an estimate of the number of small entities that may be
affected by the proposed rules, if adopted. The RFA generally defines
the term ``small entity'' as having the same meaning as the terms
``small business,'' ``small organization,'' and ``small governmental
jurisdiction.'' In addition, the term ``small business'' has the same
meaning as the term ``small business concern'' under the Small Business
Act. A small business concern is one which: (1) Is independently owned
and operated; (2) is not dominant in its field of operation; and (3)
satisfies any additional criteria established by the SBA.
92. The rules proposed herein will directly affect small radio
broadcast stations. Below, we provide a description of these small
entities, as well as an estimate of the number of such small entities,
where feasible.
93. Radio Stations. This Economic Census category ``comprises
establishments primarily engaged in broadcasting aural programs by
radio to the public. Programming may originate in their own studio,
from an affiliated network, or from external sources.'' The SBA has
established a small business size standard for this category as firms
having $38.5 million or less in annual receipts. Economic Census data
for 2012 shows that 2,849 radio station firms operated during that
year. Of that number, 2,806 firms operated with annual receipts of less
than $25 million per year. Therefore, based on the SBA's size standard
the majority of such entities are small entities.
94. According to Commission staff review of the BIA/Kelsey, LLC's
Media Access Pro Radio Database on June 22, 2018, about 11,365 (or
about 99.9 percent) of 11,371 commercial radio stations had revenues of
$38.5 million or less and thus qualify as small entities under the SBA
definition. The Commission has estimated the number of licensed
commercial AM radio stations to be 4,633 stations and the number of
licensed commercial FM radio stations to be 6,738, for a total number
of 11,371. We note the Commission has also estimated the number of
licensed noncommercial (NCE) FM radio stations to be 4,128.
Nevertheless, the Commission does not compile and otherwise does not
have access to information on the revenue of NCE stations that would
permit it to determine how many such stations would qualify as small
entities.
95. We also note, that in assessing whether a business entity
qualifies as small under the above definition, business control
affiliations must be included. The Commission's estimate therefore
likely overstates the number of small entities that might be affected
by its action, because the revenue figure on which it is based does not
include or aggregate revenues from affiliated companies. In addition,
to be determined a ``small business,'' an entity may not be dominant in
its field of operation. We further note that it is difficult at times
to assess these criteria in the context of media entities, and the
estimate of small businesses to which these rules may apply does not
exclude any radio station from the definition of a small business on
these bases; thus, our estimate of small businesses may therefore be
over-inclusive. Also, as noted above, an additional element of the
definition of ``small business'' is that the entity must be
independently owned and operated. The Commission notes that it is
difficult at times to assess these criteria in the context of media
entities, and the estimates of small businesses to which they apply may
be over-inclusive to this extent.
Description of Projected Reporting, Recordkeeping, and Other Compliance
Requirements
96. In this section, we identify the reporting, recordkeeping, and
other compliance requirements adopted in the Report and Order and
consider whether small entities are affected disproportionately by any
such requirements. The Commission decided to adopt an incubator program
with the goal of creating ownership opportunities for new entrants and
small businesses, thereby promoting competition and diversity in the
broadcast industry. In keeping with that goal, the program
[[Page 43789]]
requirements that the Commission adopted in the Report and Order will
enable the pairing of small aspiring, or struggling, broadcast station
owners with established broadcasters. These incubation relationships
will provide new entrants and struggling small broadcasters access to
the financing, mentoring, and industry connections that are necessary
for success in the industry but to date have been unavailable to many.
Participation in the incubator program is optional, not mandatory. The
Commission's expectation is that each successful incubation
relationship will result in the acquisition of a broadcast radio
station by a new entrant or small business, or the preservation of an
existing, but struggling, small broadcaster. Therefore, the Commission
anticipates that the incubator program will benefit small entities that
participate in the program, not burden them.
97. Reporting Requirements. The Commission expects that most
incubation proposals will accompany an assignment, transfer of control,
or construction permit application. The Commission directs its Media
Bureau (Bureau) authority to modify the relevant FCC Forms, including
instructions and worksheets, as needed to enable applicants to indicate
on the form that the submission involves an incubation proposal. Such
applications seeking to transfer, assign, or obtain an authorization
are subject to public notice and petitions to deny and informal
objections under the Commission's rules, and in addition to reviewing
such applications pursuant to its routine review processes, the Bureau
will review accompanying incubation proposals and approve or reject
such proposals. For any incubation relationship that does not trigger
an FCC form filing requirement, the proposal must be filed as a
Petition for Declaratory Ruling in the Incubator docket, MB Docket No.
17-289, in the Commission's Electronic Comment Filing System (ECFS).
Just as in the application context, if a temporary waiver of the
ownership cap is needed for the incubation relationship, then the
waiver request must accompany the Petition for Declaratory Ruling.
98. The incubation proposal must contain a written contract between
the parties memorializing all aspects of the incubation relationship,
so as to demonstrate both compliance with program requirements (e.g.,
that the incubated entity has both de jure and de facto control) and
the steps the parties will take to put the incubated entity in a
position to own and operate a full-service AM or FM radio station
independently. The contract must detail the level of equity interest
each party will bring to the relationship. The incubated entity must
show that it is providing a minimum equity stake as detailed above. The
contract must also detail the parties' plan to unwind the incubation
relationship and the steps they will take to enable the incubated
entity to own and operate a full-service AM or FM station
independently, be it the station that is the subject of incubation or
another station to be acquired upon conclusion of the incubation
relationship. The contract must provide the incubated entity with the
option to buy out the incubating entity's non-controlling interest in
the incubated station. The incubated entity can choose not to pursue
this option and instead maintain its existing controlling interest in
the incubated station. Alternatively, the incubated entity may choose
to sell its interest in the incubated station and use the proceeds from
the sale to acquire another full-service AM or FM station. In that
case, we expect the incubating entity to help the incubated entity
identify a full-service AM or FM station to buy and obtain the
financing necessary to purchase the station. The contract must also
provide for this alternative option.
99. Along with an agreement detailing the terms of the incubation
relationship and the rights and obligations of each party, the
incubating and incubated entities must each file a certified statement
describing, among other things, each party's background,
qualifications, and resources, and how these will enable the party, via
the incubation relationship, to promote the goals of the incubator
program--i.e., enabling a new entrant or small business to own and
operate a full-service AM or FM station independently or to place a
previously struggling station on a firmer footing. As part of the
statement, the incubated entity must certify that its annual revenues
for the previous three years did not exceed the SBA revenue standard
and that during the preceding three years it held attributable
interests in no more than three full-service AM and FM stations
(listing the stations, community of license, and facility IDs of each),
and that it did not hold an attributable interest in any TV stations,
consistent with the eligibility standards adopted in the Report and
Order. In addition, if the incubation proposal is being filed as a
Petition for Declaratory Ruling, the potential incubated entity must
make the same certifications and attribution disclosures that it would
have had to submit were it filing the FCC Form 301, 314, or 315. The
Report and Order also requires a potential incubated entity to include
in its application a certified statement laying out why it is unable to
acquire a controlling interest in the incubated station, or
successfully operate the station, absent the proposed incubation
relationship and the funding, support, or training provided thereby.
Likewise, the incubating entity must certify that it has the resources
and experience necessary to help the incubated entity become an
independent owner and operator of the incubated station or another
full-service AM or FM station and that it will devote those resources
and experience to achieve that goal.
100. In addition, the incubated and incubating entities must each
certify that the incubated entity will maintain operational and
management control of the station, including decisions regarding
programming, personnel, and finances. These submissions will enable the
Bureau to verify that the incubated entity is a bona fide entity,
without links to the incubating entity absent the incubation
relationship, and truly needs the resources of the incubator program.
Once the incubation contract has gone into effect, on the annual
anniversary of the effective date of the contract, the incubating and
incubated entities must jointly file a certified statement describing
the incubation activities during the preceding year and how these
comport with the commitments laid out in the incubation contract. The
statement must describe the progress being made towards the ultimate
goal of station ownership, or greater stability regarding current
ownership, by the incubated entity. This annual certified statement
must be filed both in the Incubator docket via ECFS and the parties'
public inspection files, so as to enable public review. These
statements will be the primary mechanism by which the Commission and
the public can gauge compliance with the terms of the incubation
contract and progress towards the goal of independent station
ownership. If, upon review of an annual statement, the Bureau has
questions or concerns, staff may follow up with the parties. No later
than six months before the contract termination date, the parties must
make a submission to the Commission stating which option for station
ownership the incubated entity plans to pursue at the conclusion of the
relationship--e.g., indicating that the incubated entity intends to buy
out the incubating entity's non-controlling interest in the incubated
station or that the parties will work together to identify
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and secure another full-service AM or FM station for the incubated
entity to acquire.
101. At the end of the three-year contract period, the parties must
again file a joint certified statement reporting on the previous year's
incubation activities. This submission will, however, also state
whether the incubated entity has acquired a new station or will
continue to retain its controlling interest in the incubated station,
either with or without pursuing its option to buy out the incubating
entity's non-controlling interest. If the goal of the incubation
relationship was to stabilize a previously struggling station, this
third annual filing must describe the current status of the incubated
station and whether it is now on a firmer footing. In the event of a
shorter incubation relationship due to exceptional progress on the part
of the incubated entity in becoming an independent owner and operator
of a full-service AM or FM station, the same filing requirement will
apply, only the filing may be made before the third year. If the
incubation relationship required a temporary waiver of the ownership
cap and the incubating entity plans to use its reward waiver to retain
an otherwise impermissible attributable interest in the incubated
station, including buying out the incubated entity's interest in the
incubated station, then the incubating entity must file a waiver
request along with the final joint statement.
102. While incubation contracts are intended to last no longer than
three years, parties may extend the incubation relationship for one
additional period of up to three years subject to Bureau approval.
Parties that wish to extend their relationships must file this request
no later than 120 days before the end of the initial three-year
contract period. The incubating entity, however, may only seek a reward
waiver, either for the incubated market or another market, after the
successful completion of the qualifying incubation relationship,
whatever the extended time period is--be it six months or three years.
If, as part of the extension, there are any revisions to the initial
incubation contract, the proposed revised contract must be filed along
with the extension request.
103. In the absence of any negative determination from the Bureau
by the end of the 120-day review period, following submission of a
final joint certified statement, the incubating entity will then have
three years in which to submit a request to use the presumptive reward
waiver. The request must be submitted with a copy of the Bureau
document(s) that approved the qualifying incubation relationship,
including any document(s) that approved an extension of the original
term as discussed in the Report and Order. If the incubation
relationship proposal was submitted and approved as part of a Form 301
construction permit application or a Form 314 or Form 315 assignment or
transfer of control application, the waiver request must also include
the file number of the approved application. If the incubating entity
wishes to use its reward waiver to purchase the incubated station, it
must file its application seeking an assignment of license or transfer
of control contemporaneously with its final annual certified statement.
It is necessary for the incubating entity to do this to ensure that the
ownership limits in the incubated market are not violated when the
temporary waiver for the incubation period expires.
104. Recordkeeping Requirements. Under the Commission's existing
public file rules, licensees and permittees of commercial and
noncommercial AM and FM stations are already required to retain in
their public inspection file a copy of any application tendered for
filing with the Commission and related materials as discussed in the
rules. Thus, in addition to filing with the Bureau, parties to
incubation contracts must retain a copy of all application materials,
including the proposed incubation contract, in their public inspection
files. Similarly, a copy of each annual certified statement discussed
above must be filed both in the Incubator docket via ECFS and the
parties' public inspection files. Consistent with the Commission's
existing public file rules, items in the public file that are required
to be filed with the Commission will be automatically imported into the
entity's online public file, and entities will only be responsible for
uploading to the online file items that are not also filed in the
Consolidated Database System (CDBS) or Licensing and Management System
(LMS) or otherwise maintained by the Commission on its own website.
105. Other Compliance Requirements. In addition to the other
compliance requirements discussed above, the Report and Order also
adopts the following:
To ensure that the incubated entity derives the maximum benefit
from the training and mentoring provided by the incubated entity, the
Report and Order requires that the incubated entity be the licensee of
the incubated station and maintain ultimate authority over station
personnel, programming, and finances. The Report and Order adopts
certain safeguards to ensure that the incubated entity has the
requisite level of autonomy during the incubation period.
106. First, the Report and Order requires the incubated entity to
satisfy the following control test consistent with the Commission's
existing revenue-based eligible entity definition, upon which the
Report and Order bases the second prong of the eligibility standard for
the incubator program. Specifically, the Report and Order requires that
the incubated entity hold more than 50 percent of the voting power of
the licensee, and if the licensee is not a publicly traded company
(which will almost assuredly be the case), a minimum of either 15
percent or 30 percent of the equity interests, depending on whether
someone else owns or controls more than 25 percent of the equity
interests. The Report and Order concludes that applying the control
test from the Commission's existing eligible entity rule will best
ensure that the incubated entity retains control of the incubated
station while still giving the parties some flexibility to establish
incubation relationships that suit their specific needs. Moreover,
using the existing standard should facilitate both participation in and
administration of the program, as the standard is already familiar to
licensees.
107. To ensure that the incubated entity retains autonomy over the
incubated station's core operating functions so as to gain the
necessary level of operational expertise, and in light of concerns
raised by some commenters, the Report and Order places certain
restrictions on the use of local marketing agreements (LMAs), joint
sales agreements (JSAs), and shared service agreements (SSAs). The
Commission's current attribution standards recognize that same-market
radio LMAs and JSAs above a certain percentage of the station's
broadcast day may confer on the brokering station the potential to
exert a significant degree of influence over core station operating
functions (i.e., programming decisions). Specifically, the Commission's
attribution standards regard as attributable ownership interests same-
market radio LMAs and JSAs in which the brokering station brokers more
than 15 percent of the broadcast time or sells more than 15 percent of
the advertising time per week. Given the Commission's rationale for
attributing these arrangements and the concerns raised in the record of
this proceeding, the Report and Order adopts the following safeguards.
108. First, to ensure that the incubated entity retains control of
the programming aired on the incubated
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station, the Report and Order prohibits LMAs involving the incubated
station. As defined in the Commission's rules, an LMA is any agreement
that involves ``the sale by a licensee of discrete blocks of time to a
`broker' that supplies the programming to fill that time and sells the
commercial spot announcements in it,'' regardless of how the agreement
is titled. Second, to ensure that the incubated entity is able to gain
operational expertise by performing the core operations of the
incubated station, the Report and Order limits any JSAs or SSAs
involving the incubated station to the first two years of the initial
incubation period. Pursuant to the definitions in the Commission's
rules, a JSA is any agreement with the licensee of a brokered station
that authorizes a broker to sell advertising time for the brokered
station, and an SSA is any agreement or series of agreements in which
(i) a station provides any station-related services to a station that
is not directly or indirectly under common de jure control permitted
under the Commission's regulations, or (ii) stations that are not
directly or indirectly under common de jure control permitted under the
Commission's regulations collaborate to provide or enable the provision
of station-related services. While the Commission's attribution
standards do not regard SSAs as attributable ownership interests, the
Commission is concerned that allowing these arrangements to be used for
the full duration of an incubation relationship could deprive the
incubated entity of its incentive to gain the operational expertise
needed to operate the station independently at the end of the
relationship. Permitting limited use of JSAs and SSAs appropriately
balances broadcasters' representations that these arrangements can make
incubation more successful with the need to ensure that each incubated
entity learns how to perform essential station functions independently
in order to be viable in the long term as an independent broadcaster.
The Commission does not believe that prohibiting LMAs and restricting
the use of JSAs and SSAs will reduce the utility of the incubator
program for incubated entities, as the record and the Commission's
experience indicate that new owners of radio stations need assistance
primarily with financing and technical issues, rather than programming
and advertising sales.
109. Moreover, these safeguards will enable the parties to evaluate
whether the incubated entity is prepared to operate independently
before the incubation period is complete and while the incubating
entity remains contractually obligated to provide support. By requiring
that the incubated entity actually obtain or produce programming, sell
advertising, and perform other core operating functions for the
incubated station for at least one full year prior to the expiration of
the incubation relationship, these protections will provide for a more
informed assessment of the incubated entity's progress and any areas
where it needs additional training and support to be viable as an
independent owner and operator of the incubated station or another
full-service AM or FM station. The incubated entity's experience
performing core operating functions may provide a persuasive
justification for extending the incubation relationship if the parties
determine that more time is needed to incubate the station. While the
Report and Order allows limited use of JSAs and SSAs, the Report and
Order also emphasizes that these agreements, if used, must be
accompanied by proper training in the relevant area(s)--e.g.,
administrative, technical, sales, etc.--covered by any such
arrangement(s) involving the incubated station.
110. Finally, the Report and Order requires that none of the
officers, directors, managing partners, or managing members of the
incubated entity hold an attributable interest in or be an employee of
the incubating entity. The Commission is concerned that allowing an
employee or an attributable interest holder in the incubating entity to
serve as an officer, director, managing partner, or managing member of
the incubated entity may jeopardize the independence of the incubated
station given the significant conflicts of interests that could arise
for these individuals and the significant authority and potential for
influence they would wield over the incubated station. While U.S.
antitrust laws prohibit, with certain exceptions, one individual from
serving as an officer or director of two competing corporations, the
Commission believes that an additional safeguard is needed to address
circumstances that may be exempt from or not covered by the antitrust
laws, such as where the two companies are not competitors, where either
company is not a corporation or does not meet certain financial
thresholds, or where an officer or director of one company is an
employee but not an officer or director of the other company.
Steps Taken To Minimize Significant Economic Impact on Small Entities,
and Significant Alternatives Considered
111. The RFA requires an agency to describe any significant,
specifically small business, alternatives that it has considered in
reaching its proposed approach, which may include the following four
alternatives (among others): (1) The establishment of differing
compliance or reporting requirements or timetables that take into
account the resources available to small entities; (2) the
clarification, consolidation, or simplification of compliance and
reporting requirements under the rule for such small entities; (3) the
use of performance, rather than design, standards; and (4) an exemption
from coverage of the rule, or any part thereof, for small entities.
112. As discussed above, the Commission decided to adopt an
incubator program with the goal of creating ownership opportunities for
new entrants and small businesses, thereby promoting competition and
diversity in the broadcast industry. In adopting the requirements that
will govern the incubator program, the Commission considered various
options and alternatives that were proposed in the NPRM and public
comments, and based on the record, the Commission concluded that
structuring the incubator program as discussed in the Report and Order
will provide small new entrants and struggling small broadcasters
access to the financing, mentoring, and industry connections that are
necessary for success in the broadcasting industry. The Commission's
expectation is that each successful incubation relationship will result
in the acquisition of a broadcast radio station by a new entrant or
small business, or the preservation of an existing, but struggling,
small broadcaster. Participation in the incubator program is optional,
not mandatory, and the Commission anticipates that the incubator
program will benefit small entities that participate in the program,
not burden them.
Report to Congress
113. Congressional Review Act. The Commission will send a copy of
the Order, including this FRFA, in a report to be sent to Congress and
the Government Accountability Office, pursuant to the Congressional
Review Act, see 5 U.S.C. 801 (a)(1)(A).
IV. Ordering Clauses
114. Accordingly, it is ordered that, pursuant to the authority
contained in Sections 1, 2(a), 4(i), 257, 303, 307-310,
[[Page 43792]]
and 403 of the Communications Act of 1934, as amended, 47 U.S.C. 151,
152(a), 154(i), 257, 303, 307-310, and 403, this Report and Order is
adopted.
115. It is further ordered that this Report and Order shall be
effective thirty (30) days after publication of the text or a summary
thereof in the Federal Register, except for those requirements
involving Paperwork Reduction Act burdens, which shall become effective
on the date announced in the Federal Register document announcing OMB
approval.
116. It is further ordered that the Media Bureau is hereby directed
to make all necessary changes to Form 301, Form 314, Form 315, and the
Commission's electronic database system to implement the changes
adopted in this Report and Order.
117. It is further ordered that the Commission's Consumer and
Governmental Affairs Bureau, Reference Information Center, shall send a
copy of this Report and Order, including the Final Regulatory
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small
Business Administration.
118. It is further ordered that, pursuant to section 801(a)(1)(A)
of the Congressional Review Act, 5 U.S.C. 801(a)(1)(A), the Commission
shall send a copy of the Report and Order to Congress and to the
Government Accountability Office.
Federal Communications Commission.
Marlene Dortch,
Secretary.
[FR Doc. 2018-18289 Filed 8-27-18; 8:45 am]
BILLING CODE 6712-01-P