The FCC eliminated the "UHF discount" on broadcast stations' reach and will now count the entire potential audience—rather than the 50% "discount" it has given to UHF stations for the past 30 years—when tallying owners' ability to reach the limit of 39% of U.S. television households. Wednesday's 3-2 partisan vote includes a grandfather clause, which means that current owner groups would not have to divest stations. But it could affect future acquisitions. In his dissent, Republican commissioner Ajit Pai suggested that the looming threat of eliminating the UHF discount has already cast a pall over station transactions.
Wednesday's vote came relatively quickly after chairman Tom Wheeler circulated a plan to eliminate the UHF discount barely two months ago.
Coming on the heels of last month's decision not to permit media cross-ownership, the UHF ruling continues to rile the broadcasting industry. Sinclair Broadcast Group and 21st Century Fox had opposed the FCC's plans to eliminate the UHF discount, but they were not available for immediate comment on Wednesday's ruling.
In its order, the commission said that the new procedure to tally viewers ensures that "broadcast rules remain relevant in the digital age by eliminating an outdated portion of those rules premised on the constraints of old technology." The 1985 UHF discount allowed commercial broadcast TV station owners to count 50% of potential viewers in every market when calculating their compliance with the national audience reach cap. The rule dates back to the days when UHF transmission had a limited range, "competitive disadvantage" and was "technically inferior," as the FCC described those historic conditions in its ruling.
"Experience since the DTV transition demonstrates that UHF channels are equal, if not superior, to VHF channels for the digital transmission of television signals," the commission said. Hence, "the UHF discount can no longer be supported on technical grounds."
"To avoid imposing undue harm on existing broadcast television station groups that exceed the national audience reach cap" the commission will grandfather combinations that were in existence in September 2013 and other combinations that were created by transactions that have received FCC approval.
"We find that this approach is fair to affected licensees and consistent with Commission precedent," the ruling said. The FCC also declined to adopt a VHF discount because "circumstances do not convince us that digital television operations in the VHF band are technically inferior to UHF in a manner that would warrant the creation of a new discount."
In his dissent, commissioner Pai claimed that the ruling "will substantially change the impact of the national cap." He cited the example of Univision, which (with extensive UHF distribution, now reaches a national cap of 22.8%.
"This means that under our current regulations, Univision has room to purchase television stations in many new markets," Pai said. "With the termination of the UHF discount, however, Univision’s national audience reach will rise to 44.8%, a figure above the national 39% cap. Accordingly, Univision will not have the ability to purchase television stations in any new market."
Univision was not available for a response.
In his four-page dissent, Pai also criticized the commission's three-year lollygagging over a decision on the UHF discount.
"If time is of the essence and delay can’t be tolerated, then why did it take almost three years to complete this rulemaking?" Pai asked. He called the process "an empty formality" and characterized the "'sentence-first, verdict-afterwards' process [as] a mockery of the notice-and-comment rulemaking process and sets a disturbing precedent for future proceedings."
In a shorter dissent, commissioner Michael O'Rielly opposed the decision, saying he rejects "the assertion that the Commission has authority to modify the National Television Ownership Rule in any way, including eliminating the UHF discount."
“NAB is disappointed the FCC eliminated the UHF discount without holistically addressing the need for reform of all broadcast media ownership rules," said Dennis Wharton, the association's executive VP of communications, in a statement about the FCC ruling. "While other industries are allowed to innovate without stifling regulation, when it comes to broadcasters, the FCC acts as if we still live in an era of ‘I Love Lucy’. It’s time for the FCC to look at broadcast ownership rules in a manner that reflects the current marketplace.”