Sinclair Broadcast Group is getting 14 stations larger with the announced $240 million acquisition of TV stations in small markets owned and operated by Bonten Media.

• WCYB (NBC) and WEMT (Fox) serving eastern Tennessee and western Virginia
• WCTI (ABC) and WYDO (Fox) in North Carolina
• KCVU (Fox), KRCR (ABC), KRVU (MNT), KUCO (UNI), KAEF (ABC), KBVU (Fox), KECA (CW) and KEUV (UNI) in California
• KECI (NBC), KCFW (NBC) and KTVM (NBC) in Montana
• KTXS (ABC), KTES (Me-TV) and KTXE (ABC) in Texas

The station acquisitions will increase Sinclair’s presence in states where it already operates, and could directly affect cable and satellite TV customers because of Sinclair’s usual practice of demanding high compensation fees for permission to carry its stations on the pay TV dial.

WCTI-TV New Bern/Greenville/Washington/
Jacksonville, N.C. is just one of the stations being acquired by Sinclair.

The acquisition allows Sinclair to make advertising opportunities available on a larger number of stations and will help Sinclair expand the number of stations that carry its digital subchannel networks including Comet, a sci-fi channel, Charge!, which airs action-oriented programming, and TBD, a short-form programming network that relies heavily on online media productions.

“We look forward to welcoming the Bonten employees into the Sinclair family and are pleased to be growing our regional presence in several states where we already operate,” said Sinclair CEO Chris Ripley in a statement. “We believe our economies of scale help us bring improvements to small market stations, including investments in news, other quality local programming, and multicast opportunities with our emerging networks.”

The current deal is only a preview of the kind of TV station consolidation expected with Sinclair’s anticipated acquisition of Tribune Media, which owns familiar large market stations like WPIX-New York, KTLA-Los Angeles and WGN-Chicago.

Last week, FCC chairman Ajit Pai led the Commission to make it easier for large station owner groups to acquire more stations. Sinclair is currently the second-largest TV station owner in the U.S. (behind Nexstar Media Group) with 165 stations if its deal with Bonten is approved by regulators. Should it acquire Tribune, it would become the nation’s largest TV station operator by far.

Ajit Pai, Chairman of U.S Federal Communications Commission, delivers his keynote speech at Mobile World Congress in Barcelona, Spain, February 28, 2017. REUTERS/Eric Gaillard

WASHINGTON (Reuters) – The U.S. Federal Communications Commission voted 2-1 on Thursday to reverse a 2016 decision that limits the number of television stations some broadcasters can buy.

The decision could lead to a possible acquisition by Sinclair Broadcast Group Inc of Tribune Media Co, some Democrats in Congress said.

Tribune did not discuss any tie up, but said in a statement the FCC decision “will serve the important interest of localism by enabling broadcasters to better serve their communities.”

FCC Chairman Ajit Pai said he plans to take a new look at the current overall limit on companies owning stations serving no more than 39 percent of U.S. television households.

Democratic FCC Commissioner Mignon Clyburn called the vote a “huge gift for large broadcasters with ambitious dreams of more consolidation.” She said it “will have an immediate impact on the purchase and sale of television stations.”

Her concern was echoed by the top Democrat in the U.S. House of Representatives, who a day earlier urged the Federal Communications Commission to cancel the vote.

House Democratic Leader Nancy Pelosi warned that the changes could be harmful to consumers, hitting their wallets and their access to an independent media voice, as she cited press reports of a possible acquisition by Sinclair Broadcast Group Inc of Tribune Media Co stations.

Clyburn

In a letter, Pelosi and Representative Frank Pallone, who is the ranking Democrat on the House Energy and Commerce Committee, urged Pai to drop the plan, which could allow the Sinclair-Tribune tie-up.

“That would be bad news for consumers in Tribune’s markets in two ways: First, consumers would lose an independent voice in their media market; and second, consumers could see their cable bills go up because Sinclair charges cable operators more than Tribune for retransmission consent,” they wrote.

Another Democrat, Representative Anna Eshoo, wrote Pai asking him to drop the plan, saying that further consolidation “will ensure there are fewer independent news outlets serving as a counter-balance to misleading or inaccurate information.”

Meredith Corp spokesman Art Slusark said on Thursday the vote “may open up the opportunity for more acquisition opportunities … We are always interested in adding quality properties to our broadcast portfolio.”

Under rules adopted in 1985, stations with weaker over-the-air signals could be partially counted against a broadcaster’s ownership cap. But last year, the FCC under Democratic President Barack Obama said those rules were outdated after the 2009 conversion to digital broadcasting, which eliminated the differences in station signal strength. It revoked the rule in September.

There is a dispute over whether the FCC has the authority to amend the 39 percent ownership limit.

The 2016 decision did not require any company to sell existing stations, but could bar acquisitions. Twenty-First Century Fox Inc in September challenged the FCC rule in court.

Reuters reported in March that Sinclair had approached Tribune to discuss a potential combination, which would hinge on regulations being relaxed.

Pai said the FCC previously effectively tightened ownership rules and then companies previously below the national cap suddenly exceeded it. He said the FCC “did not examine whether the facts justified a more stringent cap.”

Pai, who was named by U.S. President Donald Trump to head the FCC in January, said it will begin a comprehensive review of the national cap this year. That could launch a new wave of consolidation in the broadcast television industry.

Clyburn cited comments from CBS Corp Chairman and Chief Executive Leslie Moonves in February that Pai would be “very beneficial to our business.” Moonves said the company would like to acquire more stations if the cap is lifted.

(Reporting by David Shepardson; Editing by Jonathan Oatis and Dan Grebler)

Pai

Like President Donald Trump, Ajit Pai is a busy man. He’s spent his first month as FCC chairman gutting his predecessor’s legacy, reversing pro-consumer policies, ending forays into set-top box competition, fair pricing for inmate phone calls, cheap internet access for the poor, ending reviews of data caps and zero rating practices, and threatening to terminate Net Neutrality with extreme prejudice.

No wonder Bob Quinn, AT&T senior executive vice president of external & legislative affairs applauded President Trump’s appointment of Pai, proclaiming he will “quickly and decisively put back in place the commonsense regulatory framework necessary to support the President’s agenda for job creation, innovation and investment. We look forward to working with him and his team and the FCC to support President Trump’s growth agenda.”

AT&T’s only growth agenda is sending customers ever-increasing bills, and with Mr. Pai at the helm of the FCC, they are sure to get their wish.

Over their terms at the FCC under the Obama Administration, Republican Commissioners Ajit Pai and Michael O’Rielly frequently complained their minority voices on the Commission were ignored and newly proposed regulations or policies would come before the FCC so quickly, there was inadequate time for public review. But since Pai teamed up with O’Rielly to abolish many of the most important achievements of his predecessor, Chairman Thomas Wheeler, they have reportedly all but ignored the sole remaining Democrat currently serving on the Commission — Mignon Clyburn.

Last Friday, Clyburn accused Pai of hypocrisy for complaining about policies being rushed for a vote without explanation before doing the same thing himself late last week.

Clyburn

“Today is apparently ‘take out the trash day.’ In an eponymous episode of the West Wing, White House Chief of Staff Josh Lyman stated: ‘Any stories we have to give the press that we’re not wild about, we give all in a lump on Friday . . . Because no one reads the paper on Saturday,'” Clyburn said in a statement. “Today multiple Bureaus retract—without a shred of explanation—several items released under the previous administration that focus on competition, consumer protection, cybersecurity and other issues core to the FCC’s mission. In the past, then-Commissioner Pai was critical of the agency majority for not providing sufficient reasoning behind its decisions.”

Clyburn’s office asked for more than the allotted two days to review a dozen items that suddenly appeared on the FCC’s agenda.

“We were rebuffed,” Clyburn wrote.

Clyburn then accused Pai of violating the Administrative Procedure Act, which requires adequate public notice and a comment period for public input. When she asked the chairman to comply with the “reasoned decision-making requirements of the APA,” she was told ‘No deal.’

Mr. Pai’s regulatory rollback agenda has moved with breathtaking speed, according to some FCC observers. Consumer group Free Press today called Pai’s progress “Orwellian.” Over less than a month, Pai — with the help of Commissioner O’Rielly — has:

• Announced the formation of a Broadband Deployment Advisory Committee that is expected to be stacked with industry stakeholders that will recommend reform the FCC’s pole attachment rules, identify “unreasonable” regulatory barriers to broadband deployment, encourage local governments to adopt “deployment-friendly” policies, and develop a “model code” for local franchising, zoning, permitting, and rights-of-way regulations for telecom infrastructure like cell towers. Few expect the eventual “model code” to stray far from Big Telecom companies’ wish lists;
• Near-unilaterally loosened rules allowing AM radio stations to continue making their presence felt on the overcrowded FM band through the use of low-power FM “translator” stations that rebroadcast the AM station’s programming;
• Changed FCC policies to give broader notice of upcoming agenda items and policy proposals, ostensibly to improve public access to FCC rulemaking procedures. But observers suggest the change will primarily benefit industry lobbyists who will have advance detailed notice about the FCC’s upcoming agenda items, allowing them time to lobby for or against the proposals, or suggest changes;
• Rescinded “Improving the Nation’s Digital Infrastructure,” a policy paper promoting rural broadband deployment and other broadband improvements released just prior to the inauguration of President Trump. On Feb. 3, the FCC set “aside and rescinds the Digital Infrastructure Paper, and any and all guidance, determinations, recommendations, and conclusions contained therein. The Digital Infrastructure Paper will have no legal or other effect or meaning going forward.”
• Rescinded “in its entirety and effective immediately, earlier guidance provided in a March 12, 2014, public notice, DA 14-330, “Processing of Broadcast Television Applications Proposing Sharing Arrangements and Contingent Interests,” which attempted to limit ongoing media consolidation controversies including allowing one TV station to effectively operate and provide content for so-called ‘competing’ stations in a local area.
• Closed the FCC’s investigation into wireless carriers’ zero-rating policies, which allow subscribers free access to “preferred provider content” without it counting against their data plan. Critics call zero rating an end run around Net Neutrality, because providers treat their own content as “preferred.” AT&T charges other content providers to participate in its zero rating program.
• Instructed the FCC’s legal team to stop defending court challenges to its authority to ensure fair and reasonable telephone rates for incarcerated prisoners held captive to using a single carrier to make phone calls at prices much higher than what the public pays. Those rates were as high as $5.70 for a 15-minute in-state collect call placed from an incarceration facility in Kentucky. In that state alone, consumers effectively paid $2.79 million in kickbacks to state prison systems or a county jail. In contrast, a similar 15-minute call placed from a West Virginia jail or prison would cost $0.48. As a result of Pai’s actions, companies like Global Tel*Link, Securus, and Telmate “can continue the practice of price gouging prisoners and their families,” according to Prison Phone Justice;
• Ended former FCC Chairman Wheeler’s attempt to force competition in the cable set-top box marketplace, allowing consumers to take a bite out of the $20 billion cable companies make in rental fees annually. At least 99% of subscribers now pay an average of $231 a year to lease the boxes, even after the company has fully recouped their original cost. Customers in Canada can buy their own set-top boxes and DVRs.
• Killed an expansion of the FCC’s Lifeline program to offer discounted internet access to the poor. Pai reversed approvals made to nine providers — none accused of waste, fraud, or abuse — including Kajeet, Spot On, Boomerang Wireless, KonaTel, FreedomPop, Applied Research Designs, Liberty Cablevision of Puerto Rico, Northland Cable Television and Wabash Independent Networks. Pai later defended the move claiming his predecessor rushed through approval of the providers and he was rescinding those “midnight rules” as current chairman. Many Republicans are seeking a complete elimination of the Lifeline program.
• Rescinded the latest progress report on modernizing the Universal Service Fund’s E-Rate program, which is designed to subsidize telecom services for schools and libraries. It could be the first step in eliminating or dramatically reforming the Fund;
• Gave two violators of the FCC’s rules on properly collecting and reporting information about the source of political advertising aired on stations air a free pass.
• Threw out a white paper from the FCC’s own Homeland Security Bureau advising the agency on cybersecurity issues. Pai doesn’t think the FCC should be involved in cybersecurity, so anything contrary to his agenda of reducing the role of the FCC is likely destined for the nearest wastepaper basket.

FCC letter to AT&T’s Bob Quinn letting him know the company is off the hook with the FCC on zero rating.

“Ajit Pai has been on the wrong side of just about every major issue that has come before the FCC during his tenure,” said Craig Aaron, president of Free Press. “He’s never met a mega-merger he didn’t like or a public safeguard he didn’t try to undermine. He’s been an inveterate opponent of Net Neutrality, expanded broadband access for low-income families, broadband privacy, prison-phone justice, media diversity and more. If Trump really wanted an FCC chairman who’d stand up against the runaway media consolidation that he himself decried in the AT&T/Time Warner deal, Pai would have been his last choice — though corporate lobbyists across the capital are probably thrilled.”

Verizon Communications has opened preliminary talks with officials close to Charter Communications about a possible merger of the two companies, concerning regulators worried the massive combined telecommunications company would have a near-monopoly on residential broadband service in New York and western Massachusetts.

The Wall Street Journal reports Verizon is working with advisers to study the potential transaction, and warned there is no guarantee a formal deal will materialize. A merger of Verizon and Charter would combine more than 114 million Verizon Wireless customers, 16 million landline customers, and over 6 million broadband customers with Verizon DSL or FiOS with Charter’s 21 million television, phone and broadband customers. The deal could fetch a price of more than $80 billion, no small amount for Verizon, already $100 billion in debt. An acquisition by Verizon would be a remarkable development for a cable company that became America’s second largest only eight months ago with the acquisition of Time Warner Cable and Bright House Networks.

Preliminary Talks

The newspaper reported Verizon CEO Lowell McAdam has talked with Liberty Broadband CEO Greg Maffei. Liberty has a 25% voting stake in Charter Communications, and Maffei is a close ally of John Malone, Charter’s largest single shareholder. McAdam’s back channel discussions have likely been designed to test Charter’s potential interest in a deal. For Malone and the former owners of Bright House Networks who control another 7% of Charter’s shares, making money appears to be their primary motivation and neither would likely to stand in the way of a deal.

McAdam

The newspaper was less certain about Charter’s CEO Thomas Rutledge. Rutledge is approaching his fifth anniversary as president and CEO of Charter Communications, now greatly enlarged with the combination of Time Warner Cable and Bright House. He spent the last 34 years in lesser roles at Cablevision, Time Warner Cable, and its predecessor American Television and Communications (ATC). Rutledge is reportedly interested in continuing his leadership role at Charter as it seeks to grow even larger, something unlikely to happen if Verizon acquires the cable company and rebrands it as Verizon under their own management. However, Rutledge’s personal interests will likely be secondary to the potential shareholder and executive windfall likely to come from any deal.

A Verizon/Charter Merger Would Establish a Broadband Monopoly in New York and Western Massachusetts

Verizon and Charter are the only significant direct competitors in residential broadband and landline telephone service in western Massachusetts and most of New York State, except a portion of New York City, Long Island and Westchester County (served by Altice’s Cablevision) and Rochester (served by Frontier Communications). A source at the New York Department of Public Service told Stop the Cap! this morning New York regulators would have a tough time approving a merger of this size and scope unless Verizon divested its landline and FiOS network in the state or Charter sold its cable properties in New York. A Verizon divestiture would likely attract Frontier Communications as a buyer, while a Charter sale of New York assets would probably bring bids from companies like Comcast or Altice.

“We would be very concerned about how this would impact broadband service competition and to lesser degree wireline service for New York,” the source, not authorized to speak to the media, told us this morning. “Gov. Cuomo has an ambitious agenda for broadband deployment in rural New York and this deal could also be a problem for the governor’s office. Verizon is perfectly aware of the regulatory challenges such a deal would face in Albany.”

Verizon’s Heavy Dependence on Wireless Was a Mistake

Verizon is under significant pressure to act after Wall Street punished the company for a poor fourth-quarter earnings report that illustrated the days of easy money in the wireless business seem to be over. Verizon suffered the third quarter in a row of sales declines after six years of continuous growth. Analysts point to increasing competition from T-Mobile and Sprint as the single biggest factor for Verizon’s struggles. As Verizon Wireless remained slow to cut prices and remained militant about not giving new and current customers access to unlimited data plans, customers have cut back on services or switched to other providers. Revenue dropped 4.9% in the last quarter and a growing number of Verizon’s most valuable postpaid customers are now leaving — mostly for T-Mobile and Sprint. Wireless churn reached a higher-than-expected 1.1% in the last three months.

Verizon Wireless is also having trouble attracting new customers. Analysts expected Verizon would add 726,000 customers during the last quarter, but only managed to attract 591,000. Wall Street punished Verizon’s latest financial results with a 4.4% slash in the stock price, Verizon’s worst day in more than five years.

Several Wall Street analysts have urged Verizon to diversify its business to reduce its dependency on wireless. In the last three years, Verizon has invested most of its attention and resources on bolstering its wireless network. In 2014, AT&T decided to spread its risk around with significant investments in its U-verse wireline broadband network, an acquisition of satellite-TV provider DirecTV, and its bid to buy content company Time Warner, Inc. In contrast, in 2014 Verizon spent $130 billion buying out its partner’s share of Verizon Wireless. That made UK-based Vodafone cash-rich and left Verizon mired in debt.

So far, Verizon’s diversification efforts have relied on acquiring affordable companies whose best days are long past, including AOL and Yahoo. An effort to entertain Millennials with video clips and other content over its go90 mobile app has largely been a flop, and investments in telematics and machine-to-machine wireless communications are years away from paying off, if they ever do.

Verizon May Want Charter’s Extensive Fiber Backhaul Network

Verizon executives have shown little interest in acquiring assets that rely primarily on linear/live television, which is why the company never moved to counter AT&T’s acquisition of DirecTV with an offer for its satellite competitor Dish Networks.

Verizon is very interested in fiber optics — ironic for a company that largely abandoned expanding its FiOS fiber to the home service seven years ago.

Verizon will need a lot of fiber assets to power the 5G wireless networks the company is interested in deploying. This will require a massive network of fiber-connected “small cells” that will deliver wireless services at speeds faster than today’s 4G networks. These small cells will be capable of serving individual neighborhoods or planned communities and could theoretically rely on Charter’s fiber backbone to deliver service. Without access to Charter’s network, Verizon would have to undertake to build out its own fiber network throughout its service areas.

Regulatory Climate Warms for Big Business Mergers

Although President Donald Trump has voiced his opposition to AT&T’s merger with Time Warner, Inc., his appointments to manage the day-to-day affairs of government are strident believers in deregulation and are unlikely to stand in the way of merger deals. The most likely opposition to a Verizon-Charter deal would come from state telecommunications regulators in New York and Massachusetts. On the federal level, significant opposition may be unlikely. Among the Trump appointees that would likely review a Verizon-Charter merger:

• Joshua Wright is the leading contender to head the Justice Department’s antitrust division. He’s a conservative law professor who believes regulator reviews of corporate mergers should be hands-off to a degree that has failed to withstand court scrutiny. Wright’s approach during his term as a commissioner at the Federal Trade Commission was so business-friendly, some joked his middle name should be “Laissez-Faire.” He believes mergers rarely have a bad impact on competition and prices and in fact offer consumer benefits. Courts have blocked mergers he supported and judges have criticized his standards of proof that “had no support in the law.”
• Sen. Jeff Sessions is Trump’s nominee for Attorney General. While Sessions claimed he had no problem blocking anti-competitive mergers and acquisitions, Wall Street believes the Trump Administration will not stand in the way of a frenzy of mergers. Evercore ISI’s Terry Haines made it clear what is likely to come from a Sessions-led Justice Department: “Sessions’ likely nomination and confirmation by the Senate, in which he has served since 1997, is a market positive for merger and acquisition activity. Sessions as attorney general would shift immediately from the current mostly ‘red light’ Obama antitrust/competition policy and move towards one that would be friendlier to M&A activity.”
• The Federal Communications Commission would also scrutinize the deal, but under the chairmanship of Ajit Pai and a Republican majority, any significant opposition to the deal seems unlikely. Pai has never opposed any major telecommunications merger deal on principle, although he has fought with former chairman Thomas Wheeler over the terms and conditions the FCC sought to impose in return for the agency’s approval.