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T-Mobile/Sprint Merger Approval May Depend on GOP Maintaining Majority in Congress

As the wireless industry awaits an announcement that T-Mobile and Sprint have an agreement to merge, some on Wall Street are skeptical the merger deal will win approval, especially if Republicans lose their majority in the House and Senate in the 2018 mid-term elections.

Matthew Niknam of Deutsche Bank has warned his clients any merger deal not approved by next November is more likely to fall apart if  Democrats take back control of Congress:

“There also may be greater incentive for both sides to evaluate a potential deal sooner rather than later, given the risk that deal approval may slip beyond mid-term elections in late 2018 (with the risk that more populist/less corporate-friendly sentiment may become more pervasive in D.C.) In fact, we note that the Democrats’ ‘Better Deal’ agenda (unveiled in July 2017, targeted towards 2018 elections) highlights ongoing corporate consolidation as a threat to U.S. consumers, and proposes sharper scrutiny of potential deals.”

Nikram writes there has not been a lot of interest by cable operators to acquire Softbank’s Sprint, which has been effectively up for sale or merger for at least a year.

Fierce Wireless notes Cowen & Company Equity Research last month suggested the chance of a merger between T-Mobile and Sprint was now 60-70%, down from 80-90% originally. The reason for the pessimism is their estimate that any deal’s chance of winning approval was only about 50%. The odds get even worse if the Democrats start to check the Trump Administration’s power.

Public policy groups and well-compensated industry opinion leaders are already preparing to wage a PR war over a deal that would reduce America’s major wireless carriers to just three.

Professor Daniel Lyons, well-known for writing pro-industry research reports defending almost anything on their corporate policy wish list, is hinting at a possible strategy by the merging carriers by suggesting neither could survive without a merger.

Most analysts predict that with just three national wireless carriers, the U.S. wireless marketplace would more closely resemble Canada — widely seen as more carrier-friendly and expensive.

Wall Street analysts are debating exactly how many tens of thousands of jobs will be lost in a merger, and the numbers are staggering.

Jonathan Chaplin of New Street Research predicts the merger would cost the country more jobs than now exist at Sprint.

He predicts “approximately 30,000 American jobs” will be permanently lost in a merger. Together the two companies currently employ 78,000 — 28,000 at Sprint and 50,000 at T-Mobile.

Craig Moffett of MoffettNathanson Research was more conservative, predicting 20,000 job losses would come from a merger. But the impact would not be limited to just direct hire employees.

“We conservatively estimate that a total of 3,000 of Sprint and T-Mobile’s branded stores (or branded-equivalent stores) would eventually close,” Moffett’s report said.

Golden parachutes will make some executives at Sprint and T-Mobile very wealthy if a merger succeeds.

Many T-Mobile and Sprint stores are located in malls and retail “power centers” where maintaining both stores would be unnecessary. Also hard hit would be wireless tower owners and those employed to care for them. Most believe Sprint’s CDMA wireless network would eventually be decommissioned in a merger, and many of its cell sites would be mothballed. Sprint’s biggest asset is its currently unused trove of high frequency wireless spectrum it could use to deploy future 5G services, but those services would likely be provided from small cells mounted on utility poles and street lights.

The biggest winners in any deal will likely be top executives at Softbank, Sprint, and T-Mobile, Wall Street banks providing deal advisory services and financing, and shareholders, who can expect higher earnings from a less competitive marketplace. Fierce competition from T-Mobile and Sprint were both directly implicated for threatening revenues for all four wireless companies, who have had to respond to aggressive promotions by cutting prices and offering more services for less money.

The Trump Administration’s choices of Ajit Pai for Chairman of the FCC and Makan Delrahim as United States Assistant Attorney General for the Antitrust Division of the Justice Department are both widely seen as signals the White House is not going to crack down on competition-threatening merger deals. Mr. Pai has recently improved the foundation for a T-Mobile/Sprint merger by declaring the wireless industry to be suitably competitive, something required before seriously contemplating reducing the number of competitors.

Eight Democrats sent a letter to the FCC chairman last week calling on both the FCC and the Justice Department to begin an investigation into the possible merger as soon as possible, citing possible antitrust concerns.

The text of the letter:

Dear Chairman Pai and Assistant Attorney General Delrahim:

We write to ask you to begin investigating the impact of a merger between T-Mobile International and Sprint Corporation. According to Pew Research, over three-quarters of Americans now own smartphones, driven by a 12 percent increase in smartphone ownership among adults over age 65 and a 12 percent increase in smartphone ownership in households earning less than $30,000 a year since 2015. Today, smartphones are not really just phones at all. For many, they are the primary connection to the internet. An anticompetitive acquisition would increase prices, burdening American consumers, many of whom are struggling to make ends meet, or forcing them to forego their internet connection altogether. Neither outcome is acceptable.

We believe that an investigation is appropriate for three reasons. First, aggressive antitrust enforcement benefits consumers and competition in the wireless market. Second, a combination of T-Mobile and Sprint would raise significant antitrust issues and could dramatically harm consumers. Third, although a deal has not been announced, the two parties have made repeated attempts to merge, and current reports suggest they are close to an agreement. Your agencies should be in a position to fully – but expeditiously – investigate and analyze this deal should it occur.

Competition among wireless carriers has lowered prices, increased quality, and driven innovation

Consumers have benefited from competition among the four national carriers, and we have effective antitrust enforcement to thank for that competition. In the summer of 2011, the Department of Justice’s (DOJ) Antitrust Division filed suit to block AT&T’s proposed acquisition of T-Mobile despite claims that T-Mobile was a weak competitor and, without the deal, remaining options “won’t be pretty.”  The FCC likewise outlined its opposition to the deal that fall. The deal collapsed, but T-Mobile did not. It competed. It spent billions improving its network, and it offered better terms; for example, it eliminated two-year contracts and data overages. It enticed customers to switch providers by paying their termination fees. And, its competitors had to respond in kind. As William Baer, former head of DOJ’s Antitrust Division, has explained, consumers have enjoyed “much more favorable competitive conditions” since that transaction was blocked.  In May 2017, the Wall Street Journal reported that cellphone plan prices were down 12.9 percent since April 2016, the largest decline in 16 years, and attributed the drop to “intense competition” among the top cell service providers: Verizon, Sprint, T-Mobile, and AT&T.  Paul Ashworth, chief U.S. economist at Capital Economics, specifically suggested that it was caused by the “price war that has broken out among cell-phone service providers, with all the big providers now offering unlimited data plans at cheaper rates.”

Further, the fact that T-Mobile and Sprint appear to be each other’s primary competitor raises additional concerns about this potential horizontal merger. That direct competition has particularly benefited lower-income families and communities of color, many of whom rely on mobile broadband as their primary or only internet connection.  Sprint and T-Mobile have offered products and service options that are more appealing to lower-income consumers. For example, T-Mobile was the first major carrier to offer a no contract plan,  and both Sprint and T-Mobile have been leaders in offering prepaid and no credit check plans, which allow people who may have poor credit to obtain a cell plan and ultimately access the internet.

A combination of T-Mobile and Sprint would raise significant antitrust concerns

Not surprisingly, when T-Mobile and Sprint first discussed a merger in 2014, both of your predecessors expressed skepticism. William Baer stated that “[I]t’s going to be hard for someone to make a persuasive case that reducing four firms to three is actually going to improve competition for the benefit of American consumers.”  Similarly, former FCC Chairman Tom Wheeler simply explained, “[f]our national wireless providers are good for American consumers.”

What is surprising, however, is that a few years later the two companies have revived their merger talks. Whether one looks at cellphone competition as a national market or as numerous local markets, T-Mobile’s acquisition of Sprint would very likely be presumptively anticompetitive. We are concerned that this consolidation would increase prices, reduce incentives to offer new plans, and allow the remaining carriers to curtail their investment in their networks. Further, given both companies’ focus on competing for lower-income customers, the combination of Sprint and T-Mobile could disproportionately harm those consumers. In addition to potentially raising retail prices, the remaining carriers are also likely to increase prices to companies like Straight Talk, which buys bulk access to one or more of the four national carriers and advertises almost exclusively to lower-income communities.

T-Mobile and Sprint will no doubt claim that the merger will leave sufficient competition, increase cost savings, and spur investment. The agencies will need to examine these issues in depth and make the ultimate determination as to whether the effect of such a deal would be to undermine or promote competition. The very complexity of the issues only further justifies the need for the agencies to begin examining the markets and investigating the competitive dynamics sooner rather than later.

Initiating an investigation is appropriate

Although the antitrust agencies often wait for an official filing before opening an investigation, nothing requires this delay. For example, in May, the Antitrust Division announced an investigation of the possible acquisition of the Chicago Sun-Times by the owner of the Chicago Tribune.  The two companies in question here have had a longstanding interest in combining, and, according to reports, an agreement between Sprint and T-Mobile may be weeks away.

Beginning an investigation into a merger of T-Mobile and Sprint now will allow your agencies to quickly, but fully, review the agreement if it is announced. Indeed, multiple news sources are reporting that the two parties are close to a deal in principle. The likelihood of the transaction occurring combined with the serious issues that it raises provide compelling reason for DOJ and the Federal Communication Commission to begin investigating the potential transaction.

For the reasons stated above, we urge you to begin to examine this potential transaction now. Competition among four major cell phone carriers has benefited consumers with lower prices, better service, and more innovation. We are concerned that consolidation will thwart those goals. Thank you for your prompt attention to this matter.

Sincerely,

Amy Klobuchar (D-Minn.)
Al Franken (D-Minn.)
Patrick Leahy (D-Vt.)
Richard Blumenthal (D-Conn.)
Ron Wyden (D-Ore.)
Kirsten Gillibrand (D-N.Y.)
Ed Markey (D-Mass.)
Jeff Merkley (D-Ore.)

Boston Globe Joins Parade of Outlets Opposing Sinclair-Tribune Merger

Phillip Dampier September 5, 2017 Competition, Consumer News, Public Policy & Gov't No Comments

The Boston Globe has joined a parade of media outlets concerned about the future of local news that could be affected if Sinclair is successful in winning approval of its acquisition of Tribune Media’s 42 television stations, calling Sinclair a “behemoth” and the deal “a matter of urgent concern.”

Sinclair is already the largest owner of local television stations in the United States, and its proposed $3.9 billion purchase of Tribune would turn it into a behemoth, with access to more than 70 percent of American households.

An expansion of that size isn’t in the public interest, and federal regulators should move to block it. If they fail to act, state attorneys general should step up and attempt to stop the merger. Sinclair, which already has stations in Rhode Island and Maine and is looking to expand into Connecticut, has a history of slashing staff and requiring its stations to share content — reducing local news coverage in the process.

The network also requires its stations to air centrally produced, conservative-leaning segments. There are daily missives, for instance, from the “Terrorism Alert Desk” — including one piece on the French controversy over “burkinis,” apparently deemed a terrorism-related story simply because it involved Muslims. One election package suggested voters shouldn’t back Hillary Clinton, in part, because of the Democratic Party’s proslavery history. And Sinclair hired former Trump surrogate Boris Epshteyn as its chief political analyst.

[…] Sinclair’s expansion also raises classic anticompetitive concerns. A larger company will be able to demand bigger fees from cable providers retransmitting their broadcasts — costs that will eventually be passed on to consumers. […] There are other ways to prevent large cable companies from throwing their weight around. Unfortunately, the Trump administration’s Federal Communications Commission doesn’t seem interested in implementing them. Indeed, Trump’s FCC and Department of Justice don’t seem interested in much regulation at all.

The FCC docket asking for public comment on the transaction has attracted plenty of opposition to the deal from industry groups, lobbyists, competitors, consumer groups, and members of the public.

Copps (Image: Peretz Partensky)

“Sinclair has failed to explain how this multi-billion dollar merger could possibly be in the public interest,” said Computer & Communications Industry Association President Ed Black. “Even more, allowing this centrally controlled broadcast behemoth that has a history of cutting local news staff and adversely affect independent, local TV stations, would be detrimental. Anyone who values decentralized government control, states’ rights and independent voices should oppose this merger that would harm citizens and weaken our democracy. It’s a concern that a merger that would be so harmful to rural areas, independent news stations and citizens could even be considered. The FCC should reject this takeover proposal outright, and Congress needs to hold hearings to more thoroughly understand the media landscape and how critical independent local broadcast stations are in a democracy.”

“We believe this merger as proposed is unlawful, not in the public interest and should be rejected,” said Matthew Polka, CEO of the American Cable Association. The ACA represents over 700 small independent telecom companies, primarily serving suburban and rural communities.

“It would turn Sinclair into the nation’s largest broadcast conglomerate and lead to higher prices, more station blackouts, less choice, and less local news for millions of consumers,” said Dish Network in its petition to deny the merger.

Even a former FCC commissioner has spoken up against the deal.

Sinclair “comes with an ideology that is far more focused on conservative points of view than any sense of balance or any deep-dive journalism,” said Michael Copps, a former FCC commissioner and special adviser to Common Cause. “No one company should have such power over the news and information that citizens must have if they are going to cast intelligent votes and practice successfully the art of self-government.”

Charter: Time Warner Cable’s Too-Low Pricing Meant It Couldn’t Afford Upgrades

Charter Communications has a new argument for raising your cable bill: Time Warner Cable’s promotions were so low-priced, the company couldn’t afford upgrades. By ending promotional pricing and raising prices, Charter can finally afford to manage the upgrades Time Warner Cable never made.

That novel argument comes courtesy of Charter Communications’ director of government affairs Anna Lucey, who made it in response to complaints from customers in western Massachusetts about substandard service and bill shock from Charter’s Spectrum. She was invited to answer questions and complaints raised during last week’s Board of Selectmen meeting in Adams, Mass.

Cheshire resident Peter Gentile, who was serving as cameraman to televise the public meeting with the cable company for Northern Berkshire Community Television, complained that when his Time Warner Cable promotion ended, Charter promptly raised his bill from $103 to $182 a month — nearly an $80 a month rate hike.

“It is absurd … I was told I could save some money by downgrading my internet so it would be slower and I would lose approximately 30 channels and my bill would only go down $7.75,” he said. “This is an impoverished community, this is an elderly community that is getting older and poorer and … I wish that you would go back to your team and explain.”

Lucey explained Charter is adopting one-size-fits-all nationwide pricing for its customers and is ending promotional pricing, explaining that Time Warner’s policy of “subsidizing” cable bills to give customers a lower rate did not allow Time Warner Cable to invest in its infrastructure.

Lucey

“It did lend a problem to infrastructure reinvestment that Time Warner could do, which is one of the reasons why we don’t have similar promotional packages that constantly deflate the cable bills,” Lucey said. “We want to keep all of our services up to date and continue to reinvest but I understand the sticker shock isn’t pleasant.”

Unfortunately for Lucey’s creative justification for rate increases, the financial facts disprove her assertion. In fact, Time Warner Cable outperformed Charter Communications in the first quarter of 2016, just before Charter closed on its acquisition of Time Warner Cable.

In April 2016, Time Warner Cable chairman and CEO Rob Marcus reported “the best ever customer relationship net additions,” “accelerated revenue growth of 7.5%,” and “robust adjusted OIBDA growth of 8.2%.”

“Our first-quarter results are the clearest indication yet that our efforts over the last 27 months are paying off. We have made our network more reliable, our products more compelling and our customer service far better. We’ve refined our marketing, enhanced our sales channels and strengthened our retention capability. All of that has driven robust customer growth, which in Q1 translated into very strong revenue and OIBDA growth. I couldn’t be prouder of what our talented, committed, passionate team has accomplished,” Marcus said, reflecting on the history of Time Warner Cable’s Maxx upgrade project, which delivered more compelling broadband speeds at a lower cost to Time Warner Cable customers than what Charter Communications offers today.

In fact, financial results for that period showed as Time Warner methodically worked through upgrading its systems, customer and revenue growth went up. The only exception was Free Cash Flow, which the company attributed to merger-related expenses, not promotional pricing:

SELECTED CONSOLIDATED FINANCIAL RESULTS
(in millions, except per share data; unaudited) 1st Quarter
Change
2016 2015 $ %
Revenue $ 6,191 $ 5,777 $ 414 7.2 %
Adjusted OIBDA(a) $ 2,159 $ 1,996 $ 163 8.2 %
Operating Income(b) $ 1,145 $ 1,084 $ 61 5.6 %
Diluted EPS(c) $ 1.72 $ 1.59 $ 0.13 8.2 %
Adjusted Diluted EPS(a) $ 1.81 $ 1.65 $ 0.16 9.7 %
Cash provided by operating activities(b) $ 1,608 $ 1,508 $ 100 6.6 %
Capital expenditures $ 1,318 $ 1,134 $ 184 16.2 %
Free Cash Flow(a)(b) $ 346 $ 407 $ (61 ) (15.0 %)
(a) Refer to Note 4 to the accompanying consolidated financial statements for definitions of Adjusted OIBDA, Adjusted Diluted EPS and Free Cash Flow and below for reconciliations.
(b) Operating Income is reduced by merger-related and restructuring costs of $40 million and $26 million for the first quarters of 2016 and 2015, respectively. Cash provided by operating activities and Free Cash Flow are reduced by merger-related and restructuring payments of $14 million and $26 million for the first quarters of 2016 and 2015, respectively.
(c) Diluted EPS represents net income per diluted common share attributable to TWC common shareholders.

Charter’s later announcement of upgrades for the remaining Time Warner Cable systems not upgraded to Maxx service before the merger deal was completed are occurring more slowly than Time Warner’s own original timetable. As soon as the ink was dry on the merger deal, Charter immediately canceled the Maxx upgrade program for all markets not already in progress with upgrades.

Charter’s own upgrade plan is less compelling than the Maxx menu of options, which gave customers more choices at a lower cost. Charter’s own financial reports admit the company is losing former Time Warner Cable customers as their promotions expire. Charter’s own executives attribute those losses not on deferred upgrades, but on the cost of service going forward after promotional pricing expires.

Who Will Buy Charter? Altice, Comcast, SoftBank, or None of the Above?

The French press did not take kindly to comments from MoffettNathanson analyst Craig Moffett, who suggested Altice’s ability to swallow up Charter Communications in a deal worth at least $185 billion dollars was “not credible.”

Panelists appearing on French language business news channel BFM TV chuckled at Mr. Moffett’s ability to predict Altice chairman Patrick Drahi’s next move.

“Mr. Moffett does not know Mr. Drahi like we’ve come to know Mr. Drahi,” noted one analyst. “We’ve learned not to underestimate his ability to put together business deals that some would call bold, others financially reckless, yet he does it again and again. If Mr. Drahi wants [Charter], he shall have it.”

French business reporters have scoffed at Altice for years, well before the company arrived in the United States to acquire Cablevision and Suddenlink and rebrand them as Altice.

“When you don’t take him seriously, that is when he strikes,” reported BFM.

Drahi is a master of using other people’s money to finance massive telecommunications deals. For him, bigger is essential, and that means he’d either have to acquire Comcast or Charter or hope to build a cable empire out of smaller cable companies he’d acquire and combine.

Drahi (center)

Multiple independent media outlets are tracking Drahi’s movements. Le Figaro reports Drahi has spent months laying the groundwork for his next big takeover in the United States and the newspaper knew all along it would be a major deal, because Drahi is banking on the prospects of emptying the pockets of millions of American cable subscribers to fund his operations. Americans pay vastly more for cable television and broadband service than consumers in Europe because of a lack of regulation and competition.

The newspaper adds that Drahi routinely tells investors and reporters he wants to be “number one or two” in all countries where he does business. Right now Altice is the fourth largest cable operator in the United States, an absolutely intolerable situation for Mr. Drahi.

Drahi is well aware of the enormous cost of a Charter acquisition, and Bloomberg News reports he is considering asking the Canada Pension Plan Investment Board and BC Partners to help fund the potential merger. Both groups are already familiar with Mr. Drahi and Altice and were instrumental in his acquisition of Cablevision and Suddenlink. Despite the potential help, Moffett still believes Charter is well outside of Altice’s reach.

“None of the proposed suitors—Verizon, SoftBank, Altice—have the balance sheet to acquire Charter,” Moffett wrote his investor clients in a research note. He notes Greg Maffei, chairman of Liberty Broadband, is unconvinced of the wisdom of allowing a buyer to use its other highly leveraged companies as compensation in a merger deal.

Moffett believes the deal has to make sense to two people to proceed – John Malone, Charter’s largest shareholder and ironically Drahi’s mentor and Charter CEO Thomas Rutledge, who was America’s highest paid executive in 2016. He stands to get considerably richer if he can fend off a deal until he achieves tens of millions in stock option awards, first when Charter’s average share price tops $455.66 a share and stays there for at least 60 days and then again when the share price exceeds $564 a share and stays there for 60 days. This morning, Charter Communications was selling at just over $399 a share. All of the merger and acquisition talk is helping boost Charter’s stock price, but Rutledge doesn’t want the company sold until after he can walk out with his compensation package fully funded or finds a buyer willing to make him whole.

As for Malone, he’s always been willing to cash out, but only when the deal makes financial sense to him and avoids taxes.

“Let’s put a finer point on it,” Moffett added. “The ONLY reason [Liberty Media chief] John Malone would be willing to swap his equity in Charter for equity in Altice would be if he believed, with real conviction, that Altice could simply manage the asset better than Charter’s current management.  It is not a knock on Altice to suggest that there is simply no way that Liberty would believe that. Next.”

But then, Time Warner Cable’s management didn’t take an acquisition offer from Charter Communications seriously either when it was first proposed. Time Warner Cable believed selling to Comcast made better sense to shareholders and executives. Like Altice, Charter was a much smaller cable operator proposing to buy a much larger one. In the end, regulators rejected the deal with Comcast and with Wall Street beating the drum for someone to acquire Time Warner Cable, Charter’s sweetened second offer was readily accepted.

Charter’s biggest downside to a potential acquirer is the $60 billion in debt it took on buying Time Warner Cable and Bright House Networks. Debt at SoftBank also makes Moffett skeptical of a deal between Sprint and Charter.

“They [SoftBank] already sit on $135 billion of debt,” Moffett wrote. “Add Charter’s $63 billion and you’re within a rounding error of $200 billion. Add any cash at all for Charter’s equity and you’re flirting with a quarter trillion (trillion!) dollars of debt. Were SoftBank to buy Charter, they would become not only the most heavily indebted non-financial company the world has ever seen, they would in fact be more indebted than most countries.”

To avoid crushing debt scuttling a deal, Citigroup speculated in a report to their investors that Comcast and Altice could partner up to divvy up Charter Communications themselves. The Wall Street bank speculates Comcast would help finance a deal if it meant it would take control of Charter’s customers formerly served by Time Warner Cable. Legacy Charter customers and those formerly served by Bright House would become part of the Altice family.

Such a transaction would likely overcome Malone’s objections over an Altice-only offer leaving him with a large pile of Altice USA stock.

Just as with Time Warner Cable, once a company is seen willing to deal, fervor on Wall Street to make a deal — any deal — can drive companies into transactions they might not otherwise have considered earlier. If Charter is seen as a seller, there will be growing pressure to find a buyer, if only to satiate investors and executives hoping for a windfall and Wall Street banks seeking tens of millions in deal advisory fees.

Democrats Quiz FCC’s Ajit Pai About Favorable Treatment of Sinclair Broadcasting

Phillip Dampier August 14, 2017 Public Policy & Gov't No Comments

Sinclair’s deal with Tribune will make them by far the largest TV station ownership group in the country, owning 16% of the TV stations in the U.S. (Image: Mother Jones)

After a hard-hitting piece analyzing the close ties between President Donald J. Trump, FCC Chairman Ajit Pai, and Sinclair Broadcasting appeared in this morning’s New York Times, a group of leading House Democrats serving on the House Energy & Commerce Committee have written Mr. Pai asking for answers about his possible “favorable treatment” of Sinclair Broadcasting since becoming Chairman of the FCC.

These reports, according to the letter, raise two overarching questions:

  • Whether actions taken by the FCC under your leadership show a pattern of preferential treatment for Sinclair, and
  • Whether a series of interactions between your office, the Trump Campaign and Trump Administration, and Sinclair demonstrate inappropriate coordination.

The letter’s signers — all Democrats — are Rep. Frank Pallone, Jr. (ranking member of the full committee), Rep. Mike Doyle (ranking member of the Communications and Technology Subcommittee), and Rep. Diana DeGette (ranking member, Subcommittee on Oversight and Investigations).

The 12-page letter presents Pai with multiple examples of potential collusion and favorable treatment of a television station group that airs mandatory pro-Trump Administration commentaries on all of its local newscasts, employs a former Trump campaign aide, has sought private meetings with administration officials , and has made substantial campaign contributions.

The Times article appears to be the source for most of the concern expressed in the letter, which lays out multiple issues and seeks Mr. Pai’s comments and explanations.

At the beginning of the Trump Administration, the Democrats claim, Mr. Pai has undertaken a number of actions in his role as Chairman of the FCC that fall squarely in line with the corporate expansion agenda at Sinclair Broadcast Group. Among the most important was Mr. Pai’s sudden decision to bring a party-line vote to reinstate an archaic UHF Discount rule, which allows a company to downgrade the reach of its UHF stations for the purposes of determining if it is within the FCC’s limit of one station owner reaching no more than 39% of the country. This “discount” was established at a time when analog television signals on the UHF band (Channels 14+) were at a distinct coverage disadvantage over stations occupying the VHF (Channels 2-13) band. The discount was retired after the U.S. switched to digital television broadcasting, which largely eliminated this coverage disparity.

TV station owners saw a revival of the UHF Discount not as a way to deal with reception differences, but rather as a loophole to launch new acquisitions by discounting the coverage of their current stations. Only one company – Sinclair Broadcasting – stood to gain the most from the reinstatement of the UHF Discount. Almost on cue, two weeks after Pai brought this obscure rule up and reinstated it on a 2-1 vote, Sinclair announced a blockbuster merger with Tribune to acquire stations that will allow Sinclair to cover 70% of the United States, a number impossible to achieve without Pai’s support for the UHF Discount.

Democrats argue this was not what Congress intended, and it allows one station owner to own and control approximately double the number of stations the ownership cap would normally prohibit. They argue such a deal will reduce the diversity of media voices in communities across the country, especially in markets where Sinclair will own and operate more than one television station.

The New York Times provides this chart illustrating the vast expansion of stations if it wins control of Tribune Media.

The Democrats are also upset the FCC, under Pai’s leadership, appears to be in a hurry to get this deal reviewed and likely approved. It set a review window of just 30 days for public comment, considerably shorter than earlier, less controversial acquisition deals. Critics of the deal contend that the FCC is giving inadequate consideration of the deal’s lack of public interest benefits, and Sinclair’s application is vague and its claims are difficult to validate. Pai seems unconcerned, leading some to believe he intends to rubber stamp his approval with minimal conditions.

Ajit Pai, Chairman of U.S Federal Communications Commission. REUTERS/Eric Gaillard

Under Pai’s watch, the Democrats charge, Sinclair has already benefited from a ‘rush to approval’ mentality at the FCC. Sinclair’s earlier deal to acquire stations owned by the Bonten Media Group was also convenient, coming shortly after the FCC under Mr. Pai revoked guidance that would have required the FCC to closely scrutinize the transaction. The FCC granted the deal, despite the fact several of Bonten’s stations are in areas where Sinclair now holds operating agreements to manage other local stations. Large station groups have used these agreements as loopholes to effectively gain day-to-day control of stations without actually transferring their ownership.

The Democrats also argue that Sinclair is well positioned to be in the lead of Next Gen TV, ATSC 3.0 technology that will replace the current digital TV standard in the United States in the next few years. Sinclair is the biggest cheerleader of the new technology, and Mr. Pai coincidentally has put a rush on getting ATSC 3.0 approved and into the marketplace. ONE Media 3.0, a wholly owned subsidiary of Sinclair, just happens to own six critical patents essential for using the Next Gen TV standard. That means every station in the country moving to the next broadcast platform will have to pay royalties to Sinclair estimated in the billions.

As the Times reports, whenever Sinclair sought something from Washington as part of its corporate agenda, the FCC’s Mr. Pai quickly aligned himself and the FCC’s Republican majority to fulfill Sinclair’s wishes.

Rep. Frank Pallone, Jr. (D-N.J.) is ranking member of the House Energy & Commerce Committee.

The Democrats also question whether there is direct coordination between the Administration, Sinclair, and the FCC:

  • After the election, President Trump reportedly met with the Executive Chairman and former CEO of Sinclair and discussed changing FCC rules to help Sinclair. A news account stated that after the election, President Trump met with David Smith, Sinclair’s Executive Chairman and former CEO. According to this report, “potential FCC rule changes were discussed” after President Trump asked Mr. Smith, “What do you need to happen in your business?”

  • Before you became Chairman of the FCC, you reportedly met with then President-elect Trump in New York. Reports indicate that on January 16 of this year, you met with then-President-elect Trump in New York in a meeting that did not appear on your official calendar.

  • In March, shortly after you became Chairman of the FCC, you met with President Trump in the Oval Office. An FCC spokesperson confirmed that the meeting occurred, but did not indicate what was discussed during the meeting. When asked directly about your meetings with President Trump, you declined to disclose what you discussed, saying “I am not at liberty to say.”

  • The week after the election, you reportedly attended a company conference for Sinclair’s general managers, during which you met with Sinclair’s CEO. According to a Politico report, in January of this year, you met with Sinclair’s former CEO, David Smith, as well as the newly named Sinclair CEO, Chris Ripley.

  • The President’s campaign reportedly “struck a deal” with Sinclair to “secure better media coverage.” This arrangement came to light after the election, when Jared Kushner reportedly revealed that in exchange for access to then-candidate Trump and his campaign, “Sinclair would broadcast Trump interviews across the country without commentary.” Sinclair representatives have defended this arrangement by claiming that the Clinton campaign was offered the option for extended interviews with local anchors as well, but did not accept.

  • In April, Boris Epshteyn, who was “most recently Special Assistant to The President and Assistant Communications Director for Surrogate Operations for the Executive Office of President Trump,” and formerly a “senior advisor to the Trump campaign,” joined Sinclair to provide on-air political commentary. Epshteyn’s segments are “must-run” programming for Sinclair stations, with nine segments airing per week. One report has criticized the segments as “propaganda” and reporting on Sinclair’s selection of “must-run” programming has raised “suggestions that Sinclair pushed right-leaning views.”

The Democrats are requesting Mr. Pai answer their letter and provide additional information no later than Aug. 28.

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  • EJ: Trump and Pia are a blessing in disguise you will see. As long as someone somewhere can muster a decent Bernie type person we only have three more yea...
  • Dale: In our area suddenlink just downgraded the 200mbps from unlimited data to a 350gb data cap. I don't know if this is only for new customers or existing...
  • Larry Gall: This has become far, far too important a resource for the likes of these jerks to control (in it's entirety). The jerks I'm referring to are the Holl...
  • Matt: Until an operator has the guts to give true à la carte options to the customer the trend is just going to continue. Everyone I know who has cut the c...
  • EJ: They better do it while the getting is good. Raise your price and be put on the radar for unfair rate increases. Attempt to sell that you NEED to incr...
  • FredH: If no one saw this coming - they were idiots. Next come the data caps for everyone....
  • Doug: So what are they (Charter Spectrum) supposed to do? Continue repairing the sabotage? Pay for "protection?" I am certain that those customers whose ...
  • tony russo: Promo with TWC ending this week. Had Starter TV (25 channels) plus Turbo internet for $65 total. Called to see what is available and the lowest tv p...

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