Closed: Shutdown Slows Tech Approvals, M&A

An guide to navigating a (mostly) shuttered FCC
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Why This Matters: The partial government shutdown is putting a lot of FCC functions — including enforcement actions and merger reviews — on hold.

The FCC has continued to bring in money during the government shutdown — its 28-GHz spectrum auction was unaffected — but broadcasters are having to park some M&A cash on the sidelines since no potential deals can be vetted during the furlough and the vetting of those in the pipeline is on hold.

Still, there are all sorts of perils for a shuttered FCC. There is the potential of another indecent “wardrobe malfunction” or that Super Bowl ads for the latest high-tech devices could get sidelined, with FCC tech approvals bottled up.

Marc Martin, chair of the communications practice of D.C. firm Perkins Coie

Marc Martin, chair of the communications practice of D.C. firm Perkins Coie

Those are some of the problems the FCC and industry have been facing during the impasse between President Donald Trump and Congress over funding for a wall at the Mexican border.

B&C talked to Marc Martin, who chairs the communications practice of D.C. firm Perkins Coie. He is a former FCC official in the Office of Plans and Policy who now represents companies and individuals navigating the commission. Martin says industry players should remember that the absence of an open FCC does not mean the absence of rules the commissioners will still be enforcing when they get back, including retroactively on any conduct that was out of bounds while they were out of the office.

B&C: What are the potential problems for broadcast and cable operators during the shutdown?
Marc Martin:
Any request for authorizations, or for waivers or new authority for new licenses or transfers of control or assignment of licenses, are basically suspended because it is hard to argue that they put life or property at risk, which is the limited area where the FCC is going to expend skeleton staff and resources.

B&C: That means mergers and acquisitions?
MM:
Yes, I don’t think they are going to spend any money on [reviewing] M&A.

B&C: What are the implications for technology reviews?
MM:
The FCC equipment certification process for radio frequency (RF) devices is not operating during the shutdown as a general matter. It is theoretically possible an applicant could argue their application implicates the safety of life and property, but this is likely a stretch.

The FCC equipment authorizations process first involves lab testing by private organizations that are known as Telecommunication Certification Bodies (TCBs), like Underwriters Laboratories. As private entities that are paid by the applicants, the lab testing process is proceeding apace, unaffected by the shutdown. However, the final blessing after the conclusion of the lab testing is done by the FCC alone — the grant of the FCC equipment authorization. Often, the FCC engages in an iterative process of Q&A with the applicant before it is satisfied the equipment deserves to be certified, particularly in the case of novel RF devices that may carry risks of harm to humans or interference to adjacent, lawful licensees. With the FCC in shutdown mode, it is not engaging in this Q&A process with applicants and not granting authorizations.

The FCC’s rules also prohibit the advertising, marketing, sale or lease of RF devices prior to the FCC’s grant of equipment authorization. So, it is safe to assume there were numerous equipment authorization applications in the FCC’s queue that have been delayed by the shutdown. If any of the delayed manufacturers had planned a big, splashy launch for its new product with a Super Bowl ad in early February, they would have to cancel all such launch-related marketing plans until the FCC resumes operations and grants their applications. They wouldn’t even be able to do a “soft launch” without marketing fanfare, because sales are prohibited prior to FCC authorization.

Note that manufacturers are permitted in the interim to display and demonstrate unauthorized RF devices at trade shows under certain conditions, such as displaying a conspicuous disclaimer noting that the device has not be authorized by the FCC and is not for sale. Thus, at CES last week there were likely manufacturers that displayed devices without prior FCC authorization under this exception.

B&C: The shutdown also means no enforcement of bad behavior, right?
MM:
Yes, if there is either an action against a broadcaster or a complaint against them, that’s paused. So any kind of complaint or enforcement proceeding between two private parties or between the FCC and a licensee, or from consumers, all of that is suspended.

B&C: The FCC did say that it’s still accepting EEO complaints during the shutdown.
MM:
You can send things in, but they are not going to get to them until they resume.

B&C: Any advice for broadcasters and cable operators if the shutdown wears on?
MM:
FCC chairman Ajit Pai essentially tweeted that broadcasters should not take this time to go looting because the power is out (see sidebar). His example is indecency regulations. You still need to follow the regs, because the FCC can still retrospectively investigate whether somebody was in compliance.

So [those and other] rules are still in effect and the FCC can still look at anything that can happen during the shutdown.

B&C: Anything else to know?
MM:
Rulemakings affecting broadcasting [loosening kids’ TV rules, for one example] are suspended, so business plans are going to be affected by the uncertainty.

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