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How far will the FCC pursue Sinclair Broadcasting’s “misrepresentations” now that Trump has intervened?

Editor's Note:

Tom Wheeler served as the 31st Chairman of the Federal Communications Commission from 2013 to 2017.

This commenter has frequently lamented the Trump Federal Communications Commission’s (FCC) withdrawal from the policies that have for decades governed local television broadcasting and protected a diversity of voices in local news and information. It is therefore heartening to see the Commission’s unanimous decision to designate the $3.9 billion Sinclair Broadcasting acquisition of Tribune Media for administrative review.

Although unaccustomed to praising the Trump FCC, I believe this is an excellent decision. What happens next is worrisome, however, especially since Donald Trump decided to tweet about the Commission’s decision.

Trump had previously put his thumb on the FCC’s scale in April, tweeting “Sinclair is far superior to CNN and even more fake NBC”. The Commission, however, stood by its independence and did its duty. The latest tweet, however, moves from a thumb on the scale to a chain-mailed fist.

The tweet would seem to signal to Sinclair not to withdraw the transaction (a typical reaction to a designation for a hearing). The Trump tweet not only makes the Commission’s job adjudicating the matter even more complicated; the President’s inappropriate, out-of-channels involvement possibly taints the whole proceeding.

Sinclair is the nation’s largest television broadcaster with 173 stations delivering 528 channels in 81 markets. The Tribune transaction would add an additional 42 stations in 33 markets, including the cable superstation WGN America. The combined company would control access to 72 percent of American households. The Commission’s Hearing Designation Order (HDO) requires Sinclair and Tribune to appear before an FCC Administrative Law Judge to prove why the transaction is in the public interest and compliant with agency rules.

Specifically, the Commission’s order directs the FCC judge to determine “Whether Sinclair engaged in misrepresentations and/or lack of candor” in its dealings with the Commission, and whether the transaction violates the Commission’s broadcast ownership rules. Two other instructions to the judge—to decide whether the transfer is in the public interest, and whether the applications should be granted or denied—will be greatly affected by the first two findings.

Even more important, however, is an issue larger than the specific license transfers. The multiple unequivocal assertions in the Commission’s order about Sinclair’s apparent “misrepresentations and/or lack of candor” challenge the company’s qualification to hold any broadcast licenses as a public trust.

Sham transactions

The unanimously approved HDO raises questions about Sinclair’s veracity at least half a dozen times. That frequency of allegations indicates a serious breach of the agency’s trust and a violation of the rules that require truthfulness in communications with the Commission. Assertions of “misrepresentation” and a “lack of candor” not only raise issues related to the specific transaction in question, but also to whether Sinclair Broadcasting has earned the public trust represented by a broadcast license.

The order alleges the company misrepresented “divested” stations in Chicago, Dallas and Houston to comply with the agency’s ownership rules. These “divestitures” came, however, with so-called “sidecar agreements” which enabled Sinclair to operate the stations while another entity technically owned the licenses. The HDO pointedly asks the judge to determine whether these were in fact “‘sham’ transactions.”

Sidecar agreements such as these are deceptive because they allow companies such as Sinclair to tell the Securities and Exchange Commission that they control the business of a television station—making the business decisions, selling the ads, and keeping the revenues—while telling the FCC they do not technically “own” the station. It is a charade to get around a long-standing policy that a single national entity should not have excessive power over local television. When the Obama FCC moved to ban such agreements, then-Commissioner, now Chairman Ajit Pai strongly opposed the decision.

This time, however, the terms of the sidecars for three so-called “sales” in the Sinclair-Tribune transaction were too much for even the Trump FCC to stomach. In one instance, a station was “sold” at below market price to an individual with no broadcast experience who works for a company controlled by the executive chairman of Sinclair. In the other two transactions the licenses were “sold” to the trust of the executive chairman’s deceased mother that now benefits the children of Sinclair’s majority owners.

Violation of Broadcast Rules

Whether there was a sham involving the license transfers would seem to be a rather straight-forward question for the Administrative Law Judge. A greater challenge comes in determining whether the transaction violates the Commission’s broadcast ownership rules. This is because many of those rules have recently been watered down or totally eliminated by the Trump FCC.

Democratic Commissioner Jessica Rosenworcel best described this situation when she observed that over the last 18 months, the Trump FCC rule changes have been “custom built to support the business plan of Sinclair Broadcasting.” Now the judge has to make a decision whether the company violated those “custom built” rules as well as other rules.

The Trump FCC will ultimately decide whether the much-ballyhooed decision to send the transaction to a hearing is anything more than a smokescreen designed to focus attention on three specific license transfers while the remaining 39 stations sail through to make the largest broadcaster even bigger. The recent Trump tweet would seem to support such approval.

After all, the rules were specifically changed to facilitate transactions such as Sinclair’s. The reinstatement of the analog broadcast-era UHF discount, for instance, allows companies to count only half the homes covered by a television signal against the statutory cap limiting the reach of a single company. The Trump FCC also allowed companies to own multiple stations in a market. Finally, by eliminating the rule that a local licensee must have a studio, the Commission set the stage for a Sinclair national network.

Public Interest

Eighteen months ago, the Sinclair-Tribune transaction would not have passed the public interest test because it violated so many FCC rules. With those rules changed, however, it is necessary to look to other criteria to determine whether granting a license is in the public interest. It is in this line of inquiry that the Trump tweets are most concerning.

The question remains whether to transfer the other 39 Tribune licenses to Sinclair. The Commission’s order suspended this matter pending the outcome of the three sidecar transactions. If Sinclair continues with the transaction, it must confront the effect its alleged “misrepresentation and/or lack of candor” has on the company’s overall qualifications to hold these licenses.

Sinclair’s decision to withdraw the three so-called “sham” transactions is an attempt to take that matter off the table. But does it? More importantly, should it? Regardless of the status of the “sham” transactions, as a key component of the Tribune purchase they taint the other 39 transactions as well.

The real decision before the Trump FCC, however, goes beyond obedience to newly altered rules, or even a lack of truthfulness with regard to three licenses. The Trump FCC must decide whether the company that blatantly misrepresented its actions in a public proceeding deserves a public interest license to use the public’s airwaves. Sinclair’s alleged dishonesty raises the critical issue of whether such a deceptive company is qualified to hold any licenses in public trust.

These are the people’s airwaves, after all. A company does not own them, but rather licenses them to serve the public interest of broadcasting local news and information. An essential component in determining the qualifications of such a licensee has always been their integrity and good standing. As a result, the potential collapse of the merger may not be Sinclair’s—or the Trump FCC’s—biggest problem. How the FCC pursues its assertions of misrepresentation and lack of candor, especially in face of the Trump tweets, will test the agency’s integrity as well.

Only the Trump FCC knows whether we are watching an administrative smokescreen, designed to save 39 stations for a rabidly pro-Trump broadcaster while ignoring the company’s eligibility to hold any licenses. Thus far, the Trump FCC has been a master of Orwellian double-speak, saying one thing while doing the opposite. Let’s hope we are not hearing such double-speak once again.

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