Financial Issues Subcommittee

**of the**

**FCC Federal Advisory Committee on**

**Diversity for Communications in the Digital Age**

**Report and Recommendations**

June 14, 2004

We present below a summary of key issues and recommendations relating to
the financial barriers facing minorities in the broadcasting and
telecommunications industries. These issues and recommendations are
based on initial research conducted by the members of the Financial
Issues Subcommittee of the Federal Communications Commission's Federal
Advisory Committee on Diversity for Communications in the Digital Age.
These are initial recommendations, inasmuch as we are continuing to
review additional issues such as the desirability of reversionary
interests in broadcast licenses and the potential expansion and/or
amendment to existing government incentive programs to foster greater
access to capital for socially and economically disadvantaged
businesses, including particularly women and minority owned businesses.

**[Evidence of Continued Barriers to Entry]{.smallcaps}**

In 1982, the FCC determined that lack of financing posed the "single
greatest obstacle" to minority ownership of telecommunications
properties. [^1] Unfortunately, as we re-visit the issue in 2004, the
obstacle has remained, as evidenced by the continuing low levels of
ownership of broadcast stations, and of FCC licenses for new services.

In 1997-1998, the National Telecommunications and Information
Administration ("NTIA") conducted a comprehensive study of minority
ownership of full power commercial radio and television stations in the
United States. The study culminated in the release of a written report,
*Minority Commercial Broadcast Ownership in the United States: Overview
of the 1997-1998 Survey Results* (the "NTIA Report"),[^2] and painted a
somewhat dismal picture of the ownership opportunities for minorities.
Specifically, the NTIA Report, which focused on minority broadcast
ownership for the one-year period between August 1997 and August 1998,
concluded that although minority ownership of broadcast stations had
increased over prior years, the increases were not commensurate with the
overall growth of the broadcasting industry. The NTIA Report also
concluded that "access to capital remains one of the most significant
impediments to ownership for minorities."[^3]

Minorities' lack of access to capital in the broadcasting and
telecommunications industries was illustrated, in part, by statistics
contained in the NTIA Report. Key highlights include:

-   African Americans constituted 12.7 percent of the U.S. population,
    but owned only 1.7 percent of the radio and television stations in
    the United States.[^4]

-   African Americans owned 100 (2.1%) of the 4,724 commercial AM radio
    stations in the United States and 68 (1.2%) of the 5,591 commercial
    FM radio stations in the United States.[^5]

-   Of the 90 African American commercial radio station owners in the
    United States, 63 were single station owners.[^6]

-   Hispanics constituted 11.2 percent of the U.S. population, but owned
    only 1.2 percent of the radio stations in the United States.[^7]

-   Hispanics owned 84 (1.81%) of the 4,724 commercial AM radio stations
    in the United States and 46 (0.8%) of the 5,591 commercial FM radio
    stations in the United States.[^8]

-   Of the 56 Hispanic commercial radio station owners in the United
    States, 33 of those owners were single station owners.[^9]

-   Asians constituted 3.8 percent of the U.S. population, but owned
    only 0.04% percent of the radio stations in the United States.[^10]

-   Native Americans constituted 0.9% percent of the U.S. population,
    but owned only 0.02% of the radio stations in the United
    States.[^11]

The NTIA Report summarized the key trends that appeared to impact
minority ownership opportunities in broadcasting and telecommunications,
including:

-   The increases in minority ownership were negligible when compared to
    increases in the industry as a whole.

-   Minorities owned a significantly larger number of AM stations than
    FM stations.

-   Minorities owned commercial radio stations that were located
    primarily in small markets.

-   Minority owners reported that since the passage of the
    Telecommunications Act of 1996 (the "Act") they had experienced
    increased competition in securing highly ranked nationally
    syndicated programming, in attracting advertisers and earning
    sufficient advertising revenue, and in hiring and personnel
    retention.

-   Although minorities owned 15 more stations in 1998 than in 1997, the
    industry continued to lose minority owners.

-   The most established minority television owners were selling their
    stations and were unlikely to be replaced by new minority entrants
    into the marketplace.

-   Any nominal increase in minority ownership was the result of
    acquisitions by a small group of existing owners.

-   Almost two-thirds of minority commercial radio owners were single
    station owners.[^12]

The NTIA Report predicted that these trends would continue to keep
minority ownership at relatively low levels -- a prediction that,
distressingly, appears to be correct. In 2001, approximately 8,751
television and radio stations filed FCC Form 323 or FCC Form 323-E
(Ownership Report for Commercial Broadcast Station). Of the stations
that filed the report, only 303 (approximately 3.5%) identified one or
more minorities who, in the aggregate, had a greater than 50% voting
interest in the broadcast licensee entity.[^13] These more recent
numbers are just four-tenths of one percent higher than the aggregate
minority ownership numbers reported in the NTIA Report for 1997-98. The
lack of significant change highlights the need to examine the driving
forces behind the lack of progress.

**[Reasons For Lack Of Progress]{.smallcaps}**

Numerous factors have contributed to the lack of progress in minority
ownership of broadcasting and telecommunications businesses, including
the evolution of the FCC's multiple ownership rules; elimination of the
minority tax certificate program and of thresholds for determining
minority ownership and control with respect to the issuance of tax
certificates; consolidation within the broadcasting industry; the use of
competitive bidding to award licenses for spectrum-based services and
the limited success of the FCC in achieving Congressional goals to
promote the acquisition of such licenses by minorities; and the lack of
incentives for increased minority ownership of non-spectrum-based
services.[^14]

*[Multiple Ownership Rules]{.underline}*

Multiple ownership rules were implemented by the FCC in part to promote
competition and diversity in the ownership of mass media.[^15] However,
the rules also inhibit the ability of minority entrepreneurs to acquire
equity capital by restricting equity financing by venture capital
companies that could fill the "gap" between debt financing and equity
provided by the entrepreneur in a broadcast acquisition. [^16]

*[Elimination of the Minority Tax Certificate Program]{.underline}*

The FCC's minority tax certificate program used tax deferral incentives
to encourage owners of broadcast and cable properties to sell their
businesses to minorities. The tax certificate program was also available
to investors who provided start-up capital to minority-controlled
companies. Congress eliminated the program in the spring of 1995 and
passed the Telecommunications Act of 1996 (the "1996 Act") less than one
year later.

Prior to its elimination, the FCC's minority tax certificate program
enabled a significant number of minorities to purchase broadcast and
cable properties.[^17] The program "allowed sellers to defer the payment
of taxes to encourage the sale of investment in minority-controlled
companies operating a broadcast or cable property... \[and\] \[t\]he
seller's anticipated tax savings also enabled the minority company to
negotiate for a reduction in the purchase price."[^18] Since the
elimination of the program, minority entrepreneurs have found it
increasingly difficult to compete meaningfully in the broadcasting and
telecommunications industries.[^19]

*[Consolidation]{.underline}*

While the number of licensed stations has increased steadily over the
past two decades, [^20] consolidation of stations has been the trend in
the market. Despite the noble intentions of the FCC and Congress, the
deregulatory nature of the 1996 Act simply spurred consolidation in the
form of mega-mergers and interlocking joint venture arrangements,
resulting in a small number of large media and telecommunications
conglomerates, and a decreasing number of smaller players. Only in the
last couple of years have \"low power\" stations been made available,
offering limited (and noncommercial-only) opportunities for new
entrants. Because of this consolidation, small and less well capitalized
minority broadcasters have found it extremely difficult to compete with
group owners and are, therefore, more likely to sell their stations to
the large group owners, and leave the industry altogether.

*[Barriers to Entry in Spectrum-Based Services]{.underline}*

In newer telecommunications services (primarily wireless services, which
have been the most significant innovation since the Advisory Committee
Report) a couple of factors have limited diversity in the industry.
First, when cellular licenses first were made available, the FCC decided
to grant two licenses in each geographic market, and to automatically
give one of the two licenses to the incumbent local telephone company.
The FCC initially determined who would receive the second license in
each market by holding comparative hearings among competing applicants;
those hearings were costly and time-consuming and attracted few
minorities. Following statutory changes requiring that the remaining
cellular licenses be issued by lottery, [^21] barriers to obtaining a
license were significantly reduced, and anyone who participated had an
equal chance of obtaining the license. It is difficult to determine the
impact of the FCC's licensing requirements, procedures and policies on
spectrum-based telecommunications services because statistics and other
data on minority and women operations and ownership of non-broadcast
telecommunications businesses are not readily available. After an
exhaustive search of the FCC reports, periodic reports prepared by the
NTIA and several other relevant publications, the Subcommittee was
unable to find statistics on minority ownership of wireless spectrum
licenses or spectrum-based businesses. In order to adequately define and
address diversity issues in this space, the Subcommittee believes that a
comprehensive study of minority and women ownership is warranted.

In 1993, Congress eliminated the use of lotteries to award licenses for
spectrum-based services, and required instead that the FCC award most
new licenses through competitive bidding. [^22] Congress specifically
contemplated that the law would result in substantial new opportunities
for minorities and women: included in the statute was a requirement that
the FCC adopt rules to design competitive bidding systems that
"promot\[e\] economic opportunity and competition and ensur\[e\] that
new and innovative technologies are readily accessible to the American
people by avoiding excessive concentration of licenses and by
disseminating licenses among a wide variety of applicants, including
small businesses, rural telephone companies, and businesses owned by
members of minority groups and women."[^23] Furthermore, the FCC was
specifically instructed to adopt rules that promoted economic
opportunity for a wide variety of applicants, including small businesses
and businesses owned by members of minority groups and women,[^24] and
that ensured that small businesses and businesses owned by members of
minority groups and women "are given the opportunity to participate in
the provision of spectrum-based services, and, for such purposes,
consider the use of tax certificates, bidding preferences, and other
procedures."[^25]

*[Barriers to Entry in Non-Spectrum-Based Services]{.underline}*

For local telephone service and cable service -- where incumbents
providers have traditionally enjoyed monopoly or near-monopoly status --
and for long-distance telephone services, Congress has not required to
FCC to develop, and the FCC has not developed, rules or policies aimed
at increasing minority ownership and participation. As similarly noted
above, the Subcommittee was unable to quantify the impact that the lack
of FCC rules and policies have had in the area of non-spectrum based
services because statistics on minority and women ownership of these
services are not generally available. The FCC does not, for example,
maintain or public statistics on the number of competitive local
exchange carriers ("CLECs") owned by women and minority entrepreneurs.
The Subcommittee urges the FCC to conduct a comprehensive study of
minority and women ownership of non-spectrum based services in order to
fully assess diversity issues and to determine how such barriers to
access can be addressed. Such baseline data is critical to quantify and
assess the state of the problem.

**[Proposals for Enhancing Access to Capital]{.smallcaps}**

**The Rivera Report**

In 1981, the FCC created the Advisory Committee on Alternative Financing
for Minority Opportunities in Telecommunications (the "Advisory
Committee"), chaired by former FCC Chairman Henry Rivera, to explore
ways for minorities to finance the acquisition of telecommunications
properties. The Advisory Committee, comprised of industry leaders in
finance and telecommunications, summarized its major recommendations in
*Strategies for Advancing Minority Ownership Opportunities in
Telecommunications* (the "Rivera Report").[^26] The Rivera Report
focused on barriers to capital faced by minority entrepreneurs in
telecommunications. Although the Rivera Report was released more than
two decades ago, its key recommendations remain applicable today.

The Advisory Committee studied the ability of minority entrepreneurs to
purchase an existing telecommunications system. The recommendations and
key findings to improve financing for minority broadcast entrepreneurs
generally fall within three categories: (i) educating the minority
entrepreneur; (ii) educating the lending and venture capital community;
and (iii) changing FCC rules.

*[Educating the Minority Entrepreneur]{.underline}*

The Rivera Report offered a number of suggestions for educating minority
entrepreneurs, including:

-   Developing a primer to help minority entrepreneurs present
    attractive proposals to potential clients.

-   Increasing the level of awareness in the minority business community
    of the risks involved in telecommunications ventures. A minority
    entrepreneur would have a more professional financial perspective
    from which to determine the soundness of business ventures [prior to
    commitments]{.underline} and from which to successfully operate a
    business.

-   Preparing a tax bibliography and collect materials that discuss
    various tax advantages. The use of tax shelters and other tax
    devices as a means to offset financing and maintaining a profitable
    broadcast acquisition should be explored by the FCC with a focus on
    minority entrepreneurs.

*[Educating the Lending and Venture Capital Community]{.underline}*

With respect to educating the lending and venture capital communities,
the Rivera Report suggested:

-   Helping lenders become more aware of the existence and availability
    of federal and state loan guarantee programs.

-   Surveying financial institutions to augment existing surveys to
    determine the kinds of financing available for telecommunications
    ventures. The pooling of broadcast licenses, backed by banks and
    other investors, and the sharing of information among lenders would
    improve access to capital for minorities, by decreasing risks and
    interest rates.

-   Exploring the benefits that investment bankers could provide to
    minorities. Methods to attract investment bankers to serve as
    intermediaries for minority entrepreneurs seeking capital should be
    explored. The relatively low transaction prices associated with most
    broadcast acquisitions made by minorities do not attract
    commission-based investment bankers.

*[Changes to Current FCC Rules]{.underline}*

The Rivera Report recommended a number of changes to FCC policies and
rules, including:

-   Granting rules waivers to permit an established broadcaster to
    acquire an equity interest in a minority-controlled property that
    otherwise would exceed multiple ownership limits or adversely affect
    diversification.

-   Clarifying the 1978 *Statement of Policy on Minority Ownership of
    Broadcasting Facilities* to indicate that minority general partners
    holding more than 20% but less than 50% interest can exercise
    control and meet the test for tax certificates and distress sales.
    The corporate structure of a business may not warrant strict
    adherence to the percentage interest requirement for a business to
    be eligible to participate in a distress sale. A limited
    partnership, in which the general partner is a minority, should be
    able to meet the minority control test, even when the general
    partner holds less than the currently required 50% interest. The
    Advisory Committee recommended a clarification by the FCC of its
    requirements for ownership and control of a qualifying entity, but
    nonetheless suggests a threshold interest of 20% to 30% to qualify.

-   Amending the multiple ownership rules to permit venture capital
    companies to increase their equity participation in
    minority-operated entities seeking to acquire telecommunications
    facilities.

-   Expanding the tax certificate policy to include such nonbroadcast
    properties as cable, common carrier and land mobile.

-   Adopting a "capitalizing feature" for tax certificates to enable
    shareholders with less than controlling interest in a minority-owned
    or controlled entity to sell their interest to the controlling
    shareholder(s) and become eligible for a tax certificate.

-   Exploring expanding the rights of sellers as creditors, including
    the rights of a reversionary interest in a broadcast license, in
    those cases where the seller provides financing. Seller-financing is
    an attractive option for both the seller and buyer of a broadcast
    product. The seller's rights, however, are limited to those of
    creditors, which creates a disincentive if the seller is not sure
    that the buyer can operate a station at a profit. In the current
    framework a seller has two options: (i) either sell to someone who
    can generate enough cash flow to service the debt financed and turn
    a profit or (ii) create provisions in the sales contract to protect
    its interests. Rights for sellers greater than those afforded
    creditors, such as the retention of an interest in the broadcast
    license would decrease the risks described above and provide an
    incentive for a seller to transact with a less experienced minority
    purchaser.

**[Moving Forward - Proposals for Enhancing Access to
Capital]{.smallcaps}**

On January 20, 2004, the FCC Diversity Advisory Council heard from
financial advisors and experts who identified potential barriers to
capital access. In addition, suggestions were made to address some of
these issues. A copy of the comments is attached to this memorandum.

Subsequently, some committee members held one on one meetings with
industry experts to gather further information. While most of the
information is anecdotal, some consistent themes emerged which are
discussed below. In addition, one industry expert provided a recent
study completed by the Harvard Business School conducted by Professor D.
Quinn Mills. A copy is attached. Included as part of the study was a
list of selected private equity fund transactions in the media and
broadcast sector. The senior lenders sub-group reached out to
representatives of the National Bankers Association, the American
Community Bankers and the Independent Community Bankers of America. The
purpose of these sessions was to discuss (i) establishing an education
program for local and regional banks on valuation and structuring loans
to the broadcasting and communications industries, (ii) establishing an
education program for banking regulators on valuation assessing and
characterizing loans to the broadcasting and communications industries,
and (iii) establishing an education program for secondary market
purchasers of senior debt on valuation, structuring and the relative
security of loans to the broadcasting and communications industries.

Unfortunately, the response was less than enthusiastic and it would be
inappropriate to speculate as to the reasons. Nonetheless, alternative
means of reaching out to the associations are now being explored.

In terms of going forward, the Financial Issues Subcommittee would like
to submit the following proposals for consideration and review by the
full Advisory Committee. The Subcommittee recommends that these
proposals be commended to the Commission for its consideration.

[*I. Enhance transparency and access to investment
opportunities*]{.underline}

For many years, many have likened the ownership of spectrum licenses as
akin to property rights. While others dispute such characterization, it
is an appropriate prism through which to view access to or lack of
access to broadcast properties. The lack of transaction transparency has
a direct impact on the issue of access to capital. Most investors would
view the top 25 or even the top 50 markets as having the most desirable
or valuable broadcast properties. In real estate parlance, this might be
considered premium properties or "beach front" properties. The
properties would have inherent asset value, qualifying for premium
financing terms and maximum dollars.

The second tier of broadcast properties, perhaps ranging from above 50
to 125 markets might be characterized as having solid broadcast
properties with potential for growth or expansion. While these
properties would be valued by investors, and may qualify for market
financing terms, there may be some discount in dollar valuation.

The third tier of broadcast properties is generally located in much
smaller communities where the advertising and revenue base may be
somewhat limited. Investors would view these properties as having higher
investment risks because the resale values of the properties would be
limited by the revenue base or broadcast cash flow. Thus, investing in
these properties would necessitate more costly financing terms as well
as a discount in dollar valuations.

If women and minority entrepreneurs lack access to transaction
opportunities in first tier markets, they are forever relegated to
second and third tier deals. First tier deals are more attractive to
investors because of the inherent asset value associated with premium
broadcast properties. Yet, women and minority entrepreneurs are not
learning about such opportunities because there is a perception, whether
real or myth, that such entrepreneurs don't have access to sufficient
capital to bid on such properties. Conversely, financing for second and
third tier broadcast properties continues to be difficult to obtain
because there is a perception regarding the higher investment risks.
Investors worry if there is sufficient value in the properties that
provide sufficient security and collateral for their investment dollars.
At the end of the day, if women and minority entrepreneurs are not in
the loop to learn about the broadest range of broadcast investment
opportunities, then women and minority entrepreneurs are in essence,
red-lined out of business opportunities and financing.

After consultation with the Transactional Transparency and Outreach
Subcommittee, the Financial Issues Subcommittee proposes that the
Committee recommend to the FCC that it consider creating a clearinghouse
or other publication or announcement mechanism that provides licensees
with an incentive to announce the availability of assets for sale. We
note with favor the plans of the National Association of Broadcasters to
create a list of potential broadcast station purchasers. These would
enhance transparency and greater opportunity, and permit the marketplace
to determine who bids and participates in transactions. These
initiatives would underscore the close relationship between access to
opportunity and access to capital: investors develop enthusiasm when
they know that an entrepreneur will learn of potential deals in time to
bid for them.

*[II. Reinstate a Tax Deferral Program]{.underline}*

Resurrecting as much as possible of the tax certificate policy would
address many of the obstacles facing minority entrepreneurs and enable
them to obtain sufficient capital to acquire licenses and compete in
broadcast and telecommunications services, even those services that are
subject to competitive bidding. If adopted, the policy should apply not
only to broadcasting and cable properties, but to all spectrum-based and
non-spectrum-based telecommunications services. Appended hereto as
Exhibit A, and incorporated herein by reference, is a "White Paper on
Tax Incentive Program," which contains and discusses the Subcommittee's
recommendation that the Committee that it commend to the Commission the
profound value of the reinstitution of a tax deferral program.

*[III. Credits for Minority Fund Investments]{.underline}*

Increasing the pool of private equity is critical to increasing
participation by women and minority entrepreneurs in both licensed and
non-licensed spectrum opportunities. Currently, financial institutions
that place funds in SBIC licensed private equity funds receive a
Community Reinvestment Act credit.

The Financial Issues Subcommittee proposes that the FCC work with the
U.S. Treasury Department to expand the application of the Community
Reinvestment Act Credit to encourage financial institutions to place
capital in private equity funds led by women and minority entrepreneurs,
or in funds that invest in communities of color. In addition, the
Financial Issues Subcommittee proposes that a similar incentive
mechanism be explored with the appropriate regulatory agencies to
encourage pension funds, insurance companies and other financial
institutions to place monies with such equity funds.

*[IV.]{.underline}*\_*[Create Incentives for Financial Institutions to
Increase Lending Capital]{.underline}*

During the past two years, a number of financial institutions that
provided debt financing for broadcast opportunities have left the
marketplace.

While the Subcommittee's findings are based on limited interviews, the
biggest problem is that the availability of loans in the \$1 million to
\$10 million range is very thin. One of the reasons is that lenders in
smaller media and communications transactions must frequently loan
against asset value rather than cash flow. Most small deals involve the
acquisition of stations or the building of new stations with little or
no cash flow. In addition, smaller communications companies and
start-ups frequently have limitations in their management teams and they
frequently seek to finance broadcast facilities with signal strength
limitations because the more powerful stations have been taken by larger
group owners. This limits lenders to the very large deals. With
consolidation, those deals are hard to come by, so many lenders
specializing in this area sold their portfolios and pulled out. No
national banking institutions have moved in to fill the gap.

The Financial Issues Subcommittee proposes that the Committee recommend
to the FCC that it work with the U.S. Treasury Department to extend the
application of the Community Reinvestment Act to encourage more
financial institutions to provide debt financing to broadcast
investments.

Further, the Subcommittee proposes that the FCC work closely with the
SBA to educate and encourage more local and regional banks (which have
not been heavily involved in broadcasting or telecom industry lending),
to make such loans through the 7(a) program and/or the 504 program.

One consideration that may inhibit financing of small transactions is
the intangibility and thus noncollateralizability of a broadcast
license. The Subcommittee has under consideration a proposal to create a
form reversionary interest in a broadcast license.

The Subcommittee will continue to evaluate these proposals over the next
few months. At this time, the Subcommittee would seek some guidance from
the full Advisory Committee on these proposals before it proceeds with
further evaluation.

*[V. Encourage the Establishment of a Fund of Funds]{.underline}*

The National Association of Investment Companies ("NAIC") is a trade
association of private equity funds led by minority management, and who
invest in opportunities led by women and minority entrepreneurs and/or
in opportunities in underserved markets. Currently, NAIC member funds
manage over \$5 billion. While this is an impressive number, it is
estimated by the National Venture Capital Association that its member
funds currently manage more than \$65 billion.

Clearly, private equity funds which provide capital to these markets
need greater access to capital. The Finance Subcommittee proposes that
the FCC initiate discussions with the major pension funds to encourage
the establishment of a fund of funds that would place capital with
minority focused private equity funds. Data from an independent study
indicates that the financial returns from NAIC member funds were
comparable to or exceeded majority managed funds. The Commission has the
opportunity to use its platform as a bully pulpit to encourage the
pension funds to undertake such an endeavor.

VI. *[Adopt Incentive-Based Plans To Promote Broader Access to
    Capital]{.underline}*

Since 1973, the Commission has periodically adopted or administered
incentive-based plans to foster minority ownership: the Comparative
Hearing Policy (1973-1993), the Tax Certificate Policy (1978-1995), the
Distress Sale Policy (1978-Present), the Clear Channel Eligibility
Criteria (1982-1985) and the Mickey Leland Rule (1985-1996). Each of
these initiatives was premised on enabling a regulatee to receive
otherwise-unavailable benefits when it took steps to advance minority
ownership. This "win-win" paradigm consistently enjoyed nearly universal
support from the industry, the civil rights community, and members of
the FCC.

The Subcommittee has developed four proposals, each of which is outlined
in the "White Paper on Incentive-Based Regulations," appended as Exhibit
B hereto and incorporated herein by reference. These proposals
contemplate:

1.  Waivers of the Structural Ownership Rules, including:

    a.  Sales of Stations to Socially and Economically Disadvantaged
        Businesses

    b.  Incubator and Financing Programs

    c.  Share-Times

> 2\. Waivers of the Attribution Rules
>
> 3\. First Place in Line for Future Duopolies
>
> 4\. Waivers of the Construction Permit Expiration Rule.

The Subcommittee regards these proposals as worthy of consideration as
means to promote broader access to capital, and it recommends that the
Committee commend these proposals to the Commission.

VII. *[Retention and Improvement of the Distress Sale
     Policy]{.underline}*

In 1977, Chairman Wiley convened the Minority Ownership Task Force to
address the extreme under inclusion of minorities in broadcast station
ownership. One of its recommendations was the adoption of a policy under
which a broadcaster, in hearing for non-renewal or revocation of its
license, could elect before the hearing to sell the station to a
minority owned company for no more than 75% of fair market value. In
this way, the licensee in the "distress" of possible loss of license can
avoid the h earing while still incurring a very substantial financial
penalty, save the Commission the time and expense of trying the hearing
and subsequent appeals, and place the station in the hands of a
qualified operator who would have few other opportunities to acquire a
station.

The Distress Sale Policy is still in effect. It has resulted in
approximately 30 transactions involving the sale of approximately 40
stations to minorities. Its history and operation are detailed at length
in the Subcommittee's "White Paper on the Distress Sale Policy," which
is appended hereto and incorporated herein by reference as Exhibit C.

The Subcommittee recommends that the Committee express the sense of the
body that the Commission should:

1.  reaffirm the viability and routine applicability of the Distress
    Sale Policy; and

2.  in the operation of the Distress Sale Policy, assess each distress
    sale purchaser's ability to promote diversity, [e.g.]{.underline},
    by requiring a showing of the *bonafides* of the purchaser's
    company, its commitment to promoting diversity and providing service
    for a substantial length of time, and its plans to serve the needs
    of the public and to correct any deficiencies in station operations
    caused by the distress sale seller.

[^1]: *See Strategies for Advancing Minority Ownership Opportunities in
    Telecommunications: The Final Report of the Advisory Committee on
    Alternative Financing for Minority Opportunities in
    Telecommunications to the Federal Communications Commission,* at
    Executive Summary (1982).

[^2]: *See* *Minority Commercial Broadcast Ownership in the United
    States*, August 1998.

[^3]: *See id*. at p. 2.

[^4]: *See id.* at Section One p. 1.

[^5]: *See id.*

[^6]: *See id.*

[^7]: *See id.* at Section Two p. 1.

[^8]: *See id.*

[^9]: *See id.*

[^10]: *See id.* at Section Three p. 1.

[^11]: *See id*. at Section Four p. 1.

[^12]: *See id.* at pp. 2-5.

[^13]: *See* Summary of Data Regarding Minority Ownership,
    \<http://www.fcc.gov/mb/ownership/ownminor.pdf\>.

[^14]: We do not discuss here the impact of other factors, including the
    reduced role of the FCC's Equal Employment Opportunity ("EEO") rules
    as a result of successful legal challenges to those rules, on
    minority participation in media businesses.

[^15]: *See Advisory Committee Report* at p. 16.

[^16]: *See id.*

[^17]: *See* Erwin G. Krasnow, *The FCC's Minority Tax Certificate
    Program: A Proposal for Life After Death*, [51 Fed. Comm.
    L.J.]{.smallcaps} 666.

[^18]: *See id.* at pp. 668-669.

[^19]: *See* *id.* at 675-676.

[^20]: According to FCC statistics, in September 1990 there were 19,809
    licensed broadcast stations (television and radio), compared to
    26,537 licensed broadcast stations in March 2004.

[^21]: 47 USC § 309(i).

[^22]: 47 USC § 309(j).

[^23]: 47 USC § 309(j)(3)(B).

[^24]: 47 USC § 309(j)(4)(C).

[^25]: 47 USC § 309(j)(4)(D). Congress also instructed the FCC to adopt
    rules necessary to prevent unjust enrichment as a result of the
    methods used to issue licenses. 47 USC § 309(j)(4)(E).

[^26]: *See id.*