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Appeals Court Questions Why FCC Revived UHF Discount Rule

WASHINGTON — A panel of appellate judges questioned why the FCC reinstated a rule that allows media companies to amass a greater number of stations and still fall within ownership limits.

Sinclair Broadcast Group has counted on the provision — known as the UHF discount — to secure regulatory approval for its proposed acquisition of Tribune Media. Just weeks after the FCC’s action, Sinclair announced the $3.9 billion merger, which would give it a station group covering about 72% of the country.

Sinclair’s stock price fell 3.92% to close at $29.40 on the NASDAQ exchange.

The three judges on the DC Circuit Court of Appeals panel raised some concerns about the rationale behind the FCC’s decision in April, 2017, to reinstate the UHF discount after abolishing it a year earlier.

The rule allows station groups to discount their UHF holdings by half. That has allowed major station groups to acquire many more stations and still fall within a national ownership cap, which is 39%.

Judges Patricia Millett and Cornelia Pillard also expressed concerns that the FCC had restored a rule that is considered obsolete.

The discount was established in the 1980s to account for the lesser quality and reach of UHF stations. But those differences disappeared as stations got placement on cable and satellite lineups and, later, in the transition to digital television.

The FCC shifted from a Democratic to Republican majority in 2017, and current FCC Chairman Ajit Pai argued that the rule should be reinstated until the agency can also consider changes to the national ownership cap. The FCC voted 2-1 to restore the UHF discount.

The agency has since started a proceeding to examine the 39% ownership cap and the UHF discount.

Judge Gregory Katsas noted to the FCC’s attorney, James Carr, that while the FCC “might want to raise the cap,” there was “no reason for thinking at that the end of the day, part of the solution will be keeping the discount.”

“I think that is probably fair, your honor,” Carr replied. He argued that the UHF discount shouldn’t be eliminated without considering its implications to the 39% cap.

The challenge to the FCC’s action was brought by public interest groups,  including Free Press, Common Cause, and the National Hispanic Media Coalition, represented by Andrew Jay Schwartzman, challenged the FCC’s reinstatement of the discount.

The judges did have questions about the standing of the plaintiffs. Schwartzman was asked whether he would object to filing a supplemental declaration in case they found a lack of standing, and he replied, “Absolutely not, your honor.”

An FCC spokeswoman had no comment.

Chris Ruddy, the CEO of Newsmax, who has been highly critical of the FCC’s action, as well as of the Sinclair-Tribune merger, said in a statement that “the judges on the DC Circuit reviewing the FCC’s UHF discount were left scratching their heads wondering why the rule was re-instated when everyone — Republicans and Democrats alike — agree that the discount is an analog relic and makes no sense in a digital world.

“The FCC should avoid the appearance of impropriety and proceed with a transparent national ownership cap proceeding to set a level playing field before approving any merger that benefits just one company, namely Sinclair.”

A spokeswoman for Sinclair did not immediately return a request for comment.

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