TR Daily Dems Blast Pai on Media Ownership Actions, Sinclair Deal
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Thursday, April 26, 2018

Dems Blast Pai on Media Ownership Actions, Sinclair Deal

Senate and House Democrats today blasted FCC Chairman Ajit Pai on media ownership actions that the FCC has taken, which they say are designed to help Sinclair Broadcast Group, Inc., get approval for its proposed acquisition of Tribune Media Co.

In the Senate, 21 senators and independent Bernie Sanders (Vt.) called on Mr. Pai to cease all media ownership rulemakings and pending merger reviews, including the Sinclair-Tribune deal, until the agency completes a comprehensive review of the state of broadcasting and media and until the U.S. Court of Appeals for the District of Columbia Circuit has ruled on the legality of the FCC’s reinstatement of the UHF discount rule.

In the House, the ranking member of the House Appropriations Committee’s financial services and general government subcommittee grilled Mr. Pai during a hearing this afternoon on media ownership actions that the FCC has taken, including whether they were designed to benefit Sinclair’s plan to acquire Tribune. At this afternoon’s hearing, Mr. Pai also fielded questions on a myriad of other topics, including the repacking of TV stations in the wake of the incentive auction, universal service, inmate calling services, rural call quality, TV white spaces (TVWS), and robocalls.

“Your ad hoc approach to media ownership must end,” the 22 senators said in a letter to Mr. Pai. “The time has come for the Federal Communications Commission (FCC) to stop making further changes to the nation’s broadcast landscape until the agency has conducted and completed a holistic look at the state of broadcasting and the media and waited for a ruling from the U.S. Court of Appeals for the D.C. Circuit, which is currently deliberating on the legality of your previous media ownership actions. Until this has occurred, the FCC should not adopt any additional changes to its media ownership rules, it should not implement any changes adopted over the last several months and it should not approve any pending transfers of control of broadcast licenses as part of proposed mergers or acquisitions. Failure to do so threatens the heart of localism, diversity and competitive fairness in local broadcasting.”

The letter continued, “We have noted with growing concern your pattern of eliminating the longstanding rules the FCC has maintained to limit local television and radio ownership concentration. As you well know, last September, 24 Senators (including many of the signers of this letter) called on you to stop your actions to eliminate broadcast ownership limits without first conducting a comprehensive review of the state of media ownership in the country. Yet in the months since that letter, you have relentlessly continued the dismantling of these rules with apparent disregard for the collective negative effect of your actions on the nation’s media landscape.”

Among other actions, the senators noted that in late 2017, “the FCC paved the way for additional consolidation within local markets by loosening the local market ownership limits. No longer are the rules for owning multiple stations in a market clear; rather, permissive consolidation is permitted by the FCC based on its assessment of the impact a particular deal would have on a market. The first test of this new approach to local market consolidation lies in the pending merger between Sinclair Broadcast Group and Tribune Media. Many believe that your rush to alter the local ownership rules was designed to ease the final restrictions on this merger, clearing a path to approval with minimal divestitures, even in light of questions about how Sinclair operates its local stations and complies with its public interest obligations. These suggestions raise concerns about whether the FCC will objectively apply this new permissive standard to Sinclair and what sort of treatment other (potentially less favored) broadcasters may receive in the future.”

In addition to Sen. Sanders, the letter was signed by Sens. Bill Nelson (D., Fla.), ranking member of the Senate Commerce, Science, and Transportation Committee, and Brian Schatz, ranking member of the Senate communications, technology, innovation, and the Internet subcommittee, as well as Sens. Maria Cantwell (D., Wash.), Dick Durbin (D., Ill.), Edward J. Markey (D., Mass.), Ron Wyden (D., Ore.), Maggie Hassan (D., N.H.), Jack Reed (D., R.I.), Sheldon Whitehouse (D., R.I.), Patty Murray (D., Wash.), Tammy Duckworth (D., Ill.), Tom Udall (D., N.M.), Jeanne Shaheen (D., N.H.), Amy Klobuchar (D., Minn.), Gary C. Peters (D., Mich.), Catherine Cortez Masto (D., Nev.), Richard Blumenthal (D., Conn.), Tammy Baldwin (D., Wis.), Jon Tester (D., Mont.), Cory A. Booker (D., N.J.), and Jeffrey A. Merkley (D., Ore.).

At this afternoon’s House appropriations hearing, which touched only briefly on the FCC’s fiscal year 2019 budget request, Rep. Mike Quigley (D., Ill.) grilled Mr. Pai on media ownership issues and the proposed the Sinclair-Tribune deal. He also criticized the FCC’s adoption last December of its restoring Internet freedom (RIF) order (TR Daily, Dec. 14, 2017). He said that action “could cause severe harm to consumers all while stifling innovation and curtailing free expression.”

The congressman said that the Sinclair-Tribune transaction “raised troubling concerns that have yet to be cleared up.”

“The FCC has taken numerous actions that call into question, sir, your independence in the matter and, at the very least, demonstrate the appearance of preferential treatment for Sinclair, a broadcasting group with close ties to the White House,” Rep. Quigley added. “A swift series of FCC actions to ease limits on media ownership have cleared almost all restrictions for Sinclair to move forward with its merger proposal.”

The congressman asked Mr. Pai if he has recused himself from actions related to Sinclair or whether he plans to.

“I have been advised by the Office of General Counsel that recusal is not required under the applicable rules and regulations,” Mr. Pai replied.

Mr. Quigley asked how long a probe by FCC Inspector General David Hunt of allegations regarding Mr. Pai’s relationship with Sinclair and actions taken by the agency that lowered regulatory hurdles in the path of the company’s attempt to purchase Tribune would take. Mr. Pai said he doesn’t know.

The congressman asked if Sinclair told Mr. Pai or his staff before the FCC voted to reinstate the UHF discount rule (TR Daily, April 20, 2017) about the planned merger. Mr. Pai said he learned about it in the news media. Mr. Pai also said he has no knowledge of any discussions by President Trump or the White House transition team with Mr. Pai or individuals on his staff before or after the inauguration.

Mr. Pai also said that he had long known about the desire of Sinclair and other companies for the FCC to reform its media ownership rules, which Mr. Pai said he had long supported.

In response to another question, Mr. Pai said he has provided to members of the House Energy and Commerce Committee records of contacts between Sinclair and him and his staff since the 2016 presidential election.

Rep. Quigley asked Mr. Pai whether the Sinclair-Tribune merger would be undone if the FCC approves it and then the D.C. Circuit overturns the Commission’s UHF restoration order. Mr. Pai said the question had “two clashing hypotheticals” and he said he could not say.

Mr. Pai also said he could not estimate when the FCC would act on the merger, noting that the FCC stopped the clock on the deal in January (TR Daily, Jan. 11) and that Sinclair this week modified its proposal to include additional divestitures. Under the modification, Sinclair would cover nearly 59% of the U.S. and have a national reach of just more than 37% if the deal goes through. That’s down from 72% coverage as first proposed.

The congressman also repeatedly asked why the FCC restored the UHF discount rule, suggesting the Commission did that to help Sinclair get its deal through. Mr. Pai said that his “position on this issue has been clear from the beginning,” adding that the UHF discount and national cap go in tandem and are being considered in tandem in a notice of proposed rulemaking adopted last December (TR Daily, Dec. 14, 2017). But Mr. Quigley criticized Mr. Pai’s answer as “the magic of rhetoric.”

Mr. Quigley asked Mr. Pai what he thought was a reasonable national cap and what concerns he has about the percentage of the market that Sinclair would have specifically.

“What’s the magic number in your mind right now? Don’t you have some sense of what’s fair, what’s right?” he asked.

Mr. Pai declined to answer, saying he “can’t prejudge” the merger review or “the outcome of a rulemaking proceeding.”

“I can’t tell you in the fifth inning how the ninth inning is going to end,” he added.

In his opening remarks at the hearing, Mr. Pai noted that the FCC is seeking $331.1 million for FY 2019, all of which would be generated from regulatory fees.

He said that the $322 million the FCC got for FY 2018 “represented a reduction of approximately five percent from our FY 2017 appropriation, minus the directed funding for our headquarters relocation. To put our budget in perspective, in real, inflation-adjusted terms, the FCC’s appropriation has declined by over 17 percent since FY 2009.

“These reductions have required the Commission to operate more efficiently. Since I became Chairman in January 2017, we have done just that, initiating management improvements to cut costs and accomplishing more with less money. For example, we have saved a significant amount of money by closing a warehouse where we processed our mail, and instead contracting with a vendor that performs this task for many government agencies. We also are reducing our workforce in FY 2018 to comply with OMB Memo 17-22, the Comprehensive Plan for Reforming the Federal Government and Reducing the Federal Civilian Workforce,” he added. “By the end of FY 2018, we project that the Commission’s full-time equivalent (FTE) count will have declined over 10 percent in two years. In light of this, our FY 2019 budget request proposes to freeze our FTE count rather than reduce it again — because further reductions in staffing would compromise the Commission’s ability to accomplish its mission. The need to stabilize our FTE count is especially important given the many additional responsibilities Congress assigned the FCC in the Fiscal Year 2018 Consolidated Appropriations Act (Omnibus).”

Most of the increase for FY 2019 from FY 2018 would go to $8.5 million “for one-time IT investments,” Mr. Pai said.

He said many of the FCC’s IT systems and applications “are quite old, and it is becoming increasingly difficult to keep them operational. But by moving away from outdated legacy systems and applications toward cloud-based solutions, we will save money, improve resiliency, reduce cybersecurity vulnerabilities, and enhance the services we provide to those we regulate and the American people.”

Rep. Tom Graves (R., Ga.), the chairman of the subcommittee, asked Mr. Pai whether the additional $1 billion that Congress reserved in the FY 2018 omnibus bill (TR Daily, March 23) for repacking expenses will be enough. “Thus far, we don’t have any reason to believe it’s inadequate,” Mr. Pai replied.

In response to a question about rural broadband deployment, Mr. Pai said he is optimistic that the Connect America Fund II and Mobility Fund II auctions will help deployment in rural areas, as will other actions taken or proposed by the FCC.

In response to questions from Rep. John Moolenaar (R., Mich.), Mr. Pai described rural health care and robocall actions by the agency.

Rep. Moolenaar also cited concerns with the FCC’s Lifeline proposals in an NPRM last year, including banning resellers from offering Lifeline services (TR Daily, Nov. 16, 2017). Mr. Pai stressed the need “to prioritize consumers rather than the companies.”

Rep. Sanford Bishop (D., Ga.) suggested the ban on resellers was “a drastic response” that could result in millions of people losing Lifeline service. Mr. Pai said the FCC is still taking input on the NPRM.

Mr. Bishop also bemoaned that the FCC majority has said it doesn’t have jurisdiction to impose intrastate ICS rate caps.

In response to a question from Rep. Kevin Yoder (R., Kan.), Mr. Pai said he hopes to circulate “in the next couple of weeks” a telecommunications relay service NPRM.

Rep. Matt Cartwright (D., Pa.) asked Mr. Pai when the FCC will act in its TVWS proceeding, saying that ensuring an adequate number of channels in each market nationwide will help bridge the digital divide.

Mr. Pai noted that the LPTV displacement window closes on June 1 so it is too soon to know when those issues will be resolved because it won’t be known until after that deadline how many LPTV entities are seeking channels.

Mr. Cartwright also urged the FCC to work with the Agriculture Department to make sure that a new $600 million broadband pilot program doesn’t result in overbuilding of networks. Mr. Pai said he has spoken with Agriculture Secretary Sonny Perdue several times in the past year, the Wireline Competition Bureau has reached out to USDA staff, and he has set up meetings with the Rural Utilities Service administrator “to make sure we’re on the same page.”

In response to another question, Mr. Pai gave no timeframe for action on recommendations from the Broadband Deployment Advisory Committee.

Rep. David Young (R., Iowa) noted that the FCC recently dropped reporting requirements on long distance service providers related to rural call completion (TR Daily, April 17), and he asked how the Commission could ensure consumers were protected.

Mr. Pai said that long distance providers must monitor the intermediate providers to which they hand off calls and take remedial action if they drop calls. —Paul Kirby, [email protected]

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