[Federal Register Volume 83, Number 167 (Tuesday, August 28, 2018)]
[Rules and Regulations]
[Pages 43773-43792]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18289]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 73

[MB Docket No. 17-289, FCC 18-114]


Rules and Policies To Promote New Entry and Ownership Diversity 
in the Broadcasting Services

AGENCY: Federal Communications Commission.

ACTION: Final action.

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SUMMARY: In this document, the Federal Communications Commission 
establishes the requirements that will govern the incubator program 
that the Commission decided to adopt to support the entry of new and 
diverse voices into the broadcast industry.

DATES: This action contains information collection requirements that 
have not been approved by the Office of Management and Budget (OMB). 
The Commission will publish a document in the Federal Register 
announcing the approval date for the information collection 
requirements.

ADDRESSES: Federal Communications Commission, 445 12th Street SW, Room 
TW-C305, Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT: Radhika Karmarkar, 
<a href="/cdn-cgi/l/email-protection#91c3f0f5f9f8faf0bfdaf0e3fcf0e3faf0e3d1f7f2f2bff6fee7"><span class="__cf_email__" data-cfemail="580a393c303133397613392a35392a33392a183e3b3b763f372e">[email protected]</span></a>, or 202-418-1523.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order, FCC 18-114, in MB Docket No. 17-289, adopted on August 2, 
2018, and released on August 3, 2018. The complete text of this 
document is available electronically via the search function on the 
FCC's Electronic Document Management System (EDOCS) web page at https://apps.fcc.gov/edocs_public/ (https://apps.fcc.gov/edocs_public/). The 
complete document is available for inspection and copying in the FCC 
Reference Information Center, 445 12th Street SW, Room CY-A257, 
Washington, DC 20554 (for hours of operation, see https://www.fcc.gov/general/fcc-reference-information-center). To request materials in 
accessible formats for people with disabilities (Braille, large print, 
electronic files, audio format), send an email to <a href="/cdn-cgi/l/email-protection#95f3f6f6a0a5a1d5f3f6f6bbf2fae3"><span class="__cf_email__" data-cfemail="23454040161317634540400d444c55">[email protected]</span></a> (mail 
to: <a href="/cdn-cgi/l/email-protection#74121717414440341217175a131b02"><span class="__cf_email__" data-cfemail="6e080d0d5b5e5a2e080d0d40090118">[email protected]</span></a>) or call the FCC's Consumer and Governmental Affairs 
Bureau at (202) 418-0530 (voice), (202) 418-0432 (TTY).

[[Page 43774]]

Synopsis

I. Introduction

    1. With this Report and Order, we establish the requirements that 
will govern the incubator program that the Commission previously 
decided to adopt to support the entry of new and diverse voices into 
the broadcast industry. Last year, the Commission decided to adopt an 
incubator program with the goal of creating ownership opportunities for 
new entrants and small businesses, thereby promoting competition and 
diversity in the broadcast industry. We recognize the need for more 
innovative approaches to encourage access to capital, as well as 
technical, operational, and management training, for those new entrants 
and small businesses that, without assistance, would not be able to own 
broadcast stations. Thus, the incubator program is designed with those 
specific entities in mind--small businesses, struggling station owners, 
and new entrants that do not have any other means to access the 
financial assistance and operational support the incubator program 
seeks to provide. In keeping with that goal, the program requirements 
we adopt today will enable the pairing of small aspiring, or 
struggling, broadcast station owners with established broadcasters. 
These incubation relationships will provide new entrants and struggling 
small broadcasters access to the financing, mentoring, and industry 
connections that are necessary for success in the industry but to date 
have been unavailable to many.

II. Background

    2. The Commission has long contemplated the potential for an 
incubator program to provide new sources of capital and support to 
entities that may otherwise lack access to financing or operational 
experience. In concept, an incubator program seeks to provide an 
established broadcaster with an inducement in the form of an ownership 
rule waiver or similar benefit to invest the time, money, and resources 
needed to facilitate broadcast station ownership by new and diverse 
entrants. An incubator program contemplates that, in exchange for a 
defined benefit, an established company could assist a new owner by 
providing ``management or technical assistance, loan guarantees, direct 
financial assistance through loans or equity investments, training, or 
business planning assistance.''
    3. Although the concept of an incubator program has been discussed 
since at least the early 1990s and has received general support, the 
Commission had never undertaken the creation of such a program, and 
explicitly declined to adopt a program as part of its 2010/2014 
Quadrennial Media Ownership Review. In late 2017, however, the 
Commission reconsidered that determination and at long last decided to 
adopt an incubator program to help address the lack of access to 
capital and technical expertise faced by potential new entrants and 
small businesses. While the Commission committed to initiating an 
incubator program, it desired further input regarding how best to 
structure and implement a comprehensive program in light of current 
market and regulatory conditions. Accordingly, the NPRM sought comment 
on eligibility criteria for the incubated entity; appropriate 
incubating activities; potential benefits to the incubating entity; how 
such a program would be reviewed, monitored, and enforced; and the 
attendant costs and benefits created. See 83 FR 774 (Jan. 8, 2018).
    4. The record developed in this proceeding presents a range of 
thoughtful suggestions and recommendations for the incubator program. 
We are particularly grateful to the Commission's Advisory Committee on 
Diversity and Digital Empowerment (ACDDE) for the group's extensive 
consideration of the incubator program and the elements that should 
define it. The ACDDE working group members devoted many hours to 
meetings and review of empirical data before making recommendations to 
the full committee on how to structure the incubator program. The 
resulting extensive comments provided invaluable research and proposals 
that the Commission has carefully considered.
    5. With this Report and Order, we implement a long overdue 
mechanism to address the primary barriers to station ownership by new 
and diverse entities: Lack of access to capital and the need for 
technical and operational experience. In implementing this program, our 
expectation is that each successful incubation relationship will result 
in the acquisition of a broadcast radio station by a new entrant or 
small business, or the preservation of an existing, but struggling, 
small broadcaster. Accordingly, successful implementation of the 
incubator program we adopt today will promote ownership diversity by 
fostering entry into the broadcasting sector by entrepreneurs and small 
businesses, including those owned by women and minorities.

Services Eligible for Incubator Program

    6. The incubator program we outline today will apply to full-
service AM and FM radio broadcast stations, as we find that the radio 
industry provides the best opportunities for successful incubation 
relationships and the best opportunity for an appropriate reward. In 
the NPRM, the Commission sought comment on whether its incubator 
program should be focused on radio, as the proposal was initially 
conceived, or should apply to television as well. The NPRM further 
queried whether the Commission should adopt a phased approach, whereby 
the incubator program would be implemented on a trial basis in radio 
and then evaluated for possible expansion to the television market. 
Based on the record of this proceeding, we find that the radio market 
has several advantages over the television market as an incubation 
setting.
    7. Perhaps most importantly, the cost of obtaining a radio station 
is significantly lower than the cost of obtaining a television station. 
Indeed, the cost of acquiring a television station is generally many 
times that of a radio station. For example, in 2016 the average sales 
price of a radio station on the secondary market was approximately $1 
million, and the average price of a television station was $53 million. 
Due to their lack of broadcasting experience and financial collateral, 
new entrants and small broadcasters often face significant difficulties 
in accessing the capital needed to purchase broadcast stations in the 
secondary market or to participate in Commission broadcast auctions for 
new construction permits. Indeed, the record reveals that access to 
capital is most often the barrier to broadcast station ownership. 
Furthermore, given the larger numbers of radio stations in the country 
(11,371 commercial, full-service AM and FM stations) versus television 
stations (1,377 commercial, full-service stations), we find that radio 
is a more accessible entry point than television. In addition, the 
operating costs of running a radio station are significantly lower than 
those for operating a television broadcast station. As a going concern, 
radio is less cash flow intensive, requires fewer personnel to operate, 
and requires programming resources that are less costly than those for 
television stations. For these reasons, we find that transitioning from 
a qualifying incubation relationship to independent ownership will be 
more feasible for incubated entities in the radio service than in 
television. Consequently, for entities with already limited capital 
resources and operational experience,

[[Page 43775]]

we conclude that radio is a significantly more accessible entry point 
into the broadcasting industry than television.
    7. We expect that implementing an incubator program focused on the 
radio market will also motivate the participation of incumbent 
broadcasters, who are key to the success of the program, as they have 
the power to ensure that the new entrants and small businesses 
attracted to the radio industry are able to acquire, operate, and grow 
a broadcast station. As noted above, we anticipate that the inducement 
of a waiver of the Commission's Local Radio Ownership Rule will provide 
sufficient incentive for incumbent broadcasters to participate in the 
program. That is, we expect that radio station group owners will seek 
to incubate a new entrant or small broadcaster in order to obtain 
permission to exceed the applicable ownership limit in a market. In 
reaching this conclusion, we note that the local radio numerical limits 
and the AM/FM service caps have remained unchanged since they were 
prescribed by Congress over 20 years ago in the Telecommunications Act 
of 1996. Thus, the existing Local Radio Ownership Rule has restricted 
the ability of incumbent broadcasters to grow larger in any given 
market for over two decades. In addition, Joint Sales Agreements (JSAs) 
for greater than 15 percent of a station's time remain attributable in 
radio. Accordingly, given the longstanding strictures remaining on 
radio ownership, we believe a waiver of the Local Radio Ownership Rule 
will provide an effective incentive for incumbent broadcasters to 
incubate either new entities seeking entry into the broadcasting 
industry or small broadcasters.
    8. By contrast, the Commission has recently revised the rules 
governing local television ownership, including eliminating the 
attribution of television JSAs; eliminating the eight voices test, 
which required that at least eight independently owned television 
stations remain in the market after combining ownership of two stations 
in a market; and, adopting a hybrid approach to application of the top-
four prohibition, permitting case-by-case review of the restriction on 
ownership of two top-four ranked stations in the same market. In light 
of these changes and the state of the record in this proceeding as it 
pertains to television station incubation, we do not believe that it 
would be appropriate at this time to offer a waiver of the Local 
Television Ownership Rule as a reward for incubating a television 
station. However, we do not foreclose the possibility of reaching a 
different conclusion following the completion of our next quadrennial 
review depending on the record that is compiled regarding the local 
television marketplace in that proceeding. Additionally, were Congress 
to provide an alternative benefit for incubating broadcasters, we would 
be strongly inclined to expand the program to include television 
stations.
    9. Based on our consideration of the record and the current 
broadcast marketplace, including the existing broadcast ownership 
rules, we conclude that an incubator program has the greatest 
likelihood of success in the radio industry. Although some commenters, 
including NAB, advocate for an incubator program for both radio and 
television broadcast services, for the reasons stated in this section, 
we determine that the better approach at this time is to focus our 
program on the radio market. We note, however, that the ``leg up'' 
provided to these new and small broadcasters via the incubator program, 
by allowing them to establish a track record of successful station 
ownership and providing them increased access to capital, may 
ultimately position them to add television stations to their radio 
holdings. For all the reasons provided above, we determine that our 
initial foray into the use of an incubator program as a mechanism to 
increase broadcast ownership diversity should be limited to full-
service radio. As we gain more experience with the program and assess 
evolving market and regulatory trends in the television sector, we will 
be able to analyze whether it is appropriate to expand the program to 
television.

Defining Entities Eligible for Incubation

    10. In this section, we establish the eligibility criteria 
governing which entities may qualify for incubation under our program. 
Our criteria consist of both a numeric limit on the number of stations 
a potential incubated entity may own prior to entering into a 
qualifying incubation relationship (based on our existing new entrant 
bidding credit), as well as a revenue cap (based on our existing 
eligible entity definition). Additionally, as discussed below, we adopt 
certain safeguards to ensure further that a potential incubated entity 
genuinely lacks the necessary resources that would have enabled it to 
enter or succeed in the broadcast industry absent the incubation 
relationship. Finally, we also address alternative eligibility criteria 
that were proposed in our record.
    11. The NPRM sought comment on how to determine eligibility for 
participation in the incubator program and put forth several options, 
including the new entrant bidding credit model, a revenue-based 
eligible entity standard, a socially and economically disadvantaged 
businesses (SDB) model, and an Overcoming Disadvantages Preference 
(ODP) standard. The NPRM also sought comment on which of these 
standards best aligns with the Commission's goal of facilitating 
ownership opportunities for entities that lack access to capital and 
operational experience and, thereby, best promotes competition and 
viewpoint diversity in local markets.
    12. The ultimate goal of the incubator program is to encourage new 
entry into the broadcast industry, an industry which--as our record 
demonstrates--is extremely capital-intensive. The Commission has 
previously recognized, and the record here confirms, that new entrants 
and small businesses have had longstanding difficulties accessing the 
needed capital to participate in broadcast ownership. For example, 
Diane Sutter, President of ShootingStar Inc., notes that ``[t]he size 
of a deal is extremely important to most banks. Many entrants are 
limited to purchasing smaller broadcast stations, given their 
resources; however, banks often consider it not worth the potential 
risk to finance smaller deals for a new owner.'' For our incubator 
program to redress the lack of access to capital, as well as to 
facilitate operational, managerial, and technical support, it is 
critical that our eligibility criteria properly identify those entities 
that are most likely to benefit from program participation and, 
thereby, increase diversity in the broadcast sector.
    13. After careful consideration of the record in this proceeding 
and the various standards discussed in the NPRM, we adopt today a two-
pronged eligibility standard that combines a modified version of the 
existing new entrant bidding credit standard, long used in the context 
of broadcast auctions, with the revenue-based eligible entity 
definition contained in our broadcast rules. As detailed below, under 
the first prong, the potential incubated entity, including its 
attributable interest holders, may hold attributable interests in no 
more than three full-service AM or FM radio stations and no TV 
stations. The ownership limit of three full-service radio stations does 
not include the radio station to be incubated. Under the second prong 
of our standard, the entity must also qualify as a small business 
consistent with the SBA standards for

[[Page 43776]]

the radio industry based on annual revenue, currently $38.5 million or 
less.
    14. New Entrant Prong. With respect to the first prong of our 
standard, we find that modifying the new entrant eligibility standard 
for this purpose by limiting permissible interests to three full-
service AM or FM radio broadcast stations (licenses or unbuilt 
construction permits) and no TV stations will focus the program on 
entities that are new or comparatively new to the broadcasting industry 
(i.e., those with no existing broadcast interests) and small 
broadcasters (i.e., those with three or fewer full-service radio 
stations, and no TV stations). The record reflects that individuals 
seeking to purchase their first or second broadcast station are the 
ones that often face the most challenging financial hurdles. Thus, the 
eligibility standard we adopt today is targeted specifically to benefit 
those small entities seeking to enter the broadcast industry for the 
first time and to help broadcasters with one, two, or three radio 
stations to secure the toehold they have obtained in the industry. 
While we acknowledge that an entity with interests in four or more 
radio stations or a television station may not necessarily be 
considered a large or established broadcaster, we expect that a 
broadcaster with such interests will have more access to traditional 
financing and capital resources available, such that the resources 
anticipated to flow through the Commission's incubator program would 
not be as critical to their entry or survival. Consequently, limiting 
the eligibility criteria to those who have no more than three radio 
stations (consistent with the current new entrant bidding credit rule's 
limitation to ``three mass media facilities''), and no TV stations, 
best promotes the purposes of the program.
    15. Moreover, analyses of Commission broadcast auctions data 
provided in the record show that the new entrant bidding credit--a 
modified version of which we adopt herein--has increased successful 
participation of small businesses owned by women and minorities in the 
auction of construction permits for AM, FM, and TV stations. NAB 
performed an analysis of the Commission's broadcast auctions data and 
found that winning bidders relying on the Commission's new entrant 
bidding credits were more likely to have indicated that they were owned 
by women and minorities than winning bidders who did not use the 
credit. NAB's analysis focused on nine FM broadcast auctions that 
utilized the new entrant bidding credit. Its study concluded that 
winning bidders relying on new entrant bidding credits were 93 percent 
more likely to be women, and 40 percent more likely to be minorities, 
than winning bidders who did not use the credit. In addition, NAB found 
that collectively winning bidders using new entrant bidding credits 
were 64 percent more likely to be minorities or women than other 
winning bidders.
    16. We note that the ACDDE also found that the use of the ``new 
entrant'' standard in auctions revealed a statistically significant 
improvement in female and minority participation after its review of 20 
FCC broadcast auctions, more than twice the number evaluated by NAB. 
The ACDDE determined that these auctions attracted a total of 2,531 
applicants, of which 1,681 were determined to be qualified bidders. Of 
the 1,681 qualified bidders, the ACDDE found that (1) 1,457 were new 
entrants (i.e., held three or fewer mass media interests); (2) 
qualified minority new entrants (12.4 percent) were more prevalent than 
qualified minority-owned applicants who were not new entrants (8.7 
percent); and (3) qualified women-owned new entrants (10.8 percent) 
were more prevalent than qualified women-owned bidders who were not new 
entrants (7.9 percent). Based on this review, the ACDDE agrees that, 
while not its preferred approach, the new entrant definition ``might 
have some utility'' as a means of determining eligibility for 
participation in the incubator program.
    17. Commission staff also evaluated data from a number of 
Commission broadcast auctions conducted over the past several years, 
and that data reveal that the new entrant bidding credit has increased 
successful participation of small businesses owned by women and 
minorities in the auction process for AM, FM, and TV construction 
permits. The Commission collects data on information voluntarily filed 
by auction participants utilizing FCC Form 175. Staff analysis of 
auctions data for 20 auctions shows that of the 2,534 total applicants 
for those auctions, 1,457 of them, or 57.5 percent of the applicants, 
indicated that they qualified for the new entrant bidding credit. A 
total of 408 new entrant bidders were successful in their auction. The 
percentage of winning bidders that used a new entrant bidding credit 
and identified as women-owned was three times larger (12 percent) than 
the percentage of bidders that won without a new entrant bidding credit 
and were women-owned (4 percent). Similarly, the percentage of winning 
bidders that used a new entrant bidding credit and identified as 
minority-owned was almost three times larger (14 percent) than the 
percentage of bidders that won without the new entrant bidding credit 
and were minority-owned (5 percent).
    18. NAB's and the ACDDE's evaluations of the Commission's broadcast 
auctions data, like the Commission staff's analysis, suggest that the 
Commission's use of the new entrant bidding credit standard has been 
effective in diversifying the pool of successful bidders in the 
broadcast auctions context. Our assessment encompassed twice as many 
auctions as those reviewed by NAB, and the overall results of those 
evaluations were similar--that the percentage of winning bidders who 
used a new entrant bidding credit and identified as either women-owned 
or minority-owned consistently exceeded the percentage of winning 
bidders who did not use a new entrant bidding credit and were women-
owned or minority-owned. Thus, we expect that use of a similar new 
entrant eligibility standard will be an effective means to diversify 
the applicant pool for the incubator program, by targeting those small 
broadcasters most in need of the support provided by the incubator 
program, including minority and female applicants.
    19. Small Business Prong. The second prong of our eligibility 
standard requires that incubated entities also qualify as small 
businesses consistent with the SBA standards for their industry 
grouping, based on annual revenue, currently $38.5 million or less for 
radio. NAB supports use of a revenue-based eligible entity standard in 
combination with a new entrant standard. The ACDDE objects to a 
revenue-based standard standing alone, asserting that this type of 
definition ``has little or no value in advancing ownership diversity in 
the broadcast context.'' We conclude, however, that the revenue cap, in 
conjunction with the first eligibility prong as well as other 
safeguards discussed herein, will assist in identifying entities that 
are more likely to be in need of incubation by established 
broadcasters. The combination of the new entrant eligibility criteria 
and the small business revenue standard will narrow the scope of 
eligible applicants to those applicants most in need of assistance via 
our incubator program. In this way, we expect to achieve our 
overarching goal of increasing ownership diversity by facilitating 
entry and developing broadcast expertise amongst new and small 
broadcasters.
    20. After close review of the record, we find that the eligibility 
standard set forth above is the best means for identifying incubated 
entities whose lack of access to capital and operational

[[Page 43777]]

experience has impeded their ability to participate successfully in the 
broadcast sector. We expect that pairing such entities with established 
incumbent broadcasters who can provide the necessary capital, 
knowledge, and operational support will ultimately promote competition 
and viewpoint diversity in local markets. The combination of a 
numerical cap on broadcast interests and a revenue limitation will 
ensure that incubated entities participating in the program are truly 
new or small broadcasters.
    21. Moreover, drawn from existing Commission rules, the standard we 
adopt today provides a clear, objective metric that is familiar to 
broadcasters. Use of an objective standard has the advantage of being 
straightforward and transparent for potential applicants, as well as 
administrable for the Commission without application of significant 
additional processing resources. Furthermore, unlike some of the other 
proposals contained in the record, because the new entrant bidding 
credit standard is race and gender neutral, it does not raise 
constitutional concerns.
    22. We decline to adopt an Overcoming Disadvantage Preference (ODP) 
standard. The ACDDE advocates for such a standard, which it describes 
as a ``race-and-gender-neutral preference'' focused on the experiences 
and efforts of an individual person that affords a preference to those 
who strived, through superior individual efforts, to attempt to 
overcome major impediments to success. According to the ACDDE, 
``success or failure in overcoming obstacles is not pertinent;'' 
rather, what would matter is ``effort, the steps the person took to 
persevere.'' We note the concerns raised by NAB that a standard such as 
ODP will require the Commission to make subjective decisions on the 
qualifications of candidates proposed to be the incubated entity, which 
could be time-consuming, complex, and subject to disputes.
    23. The Commission has previously assessed ODP and articulated its 
concern that the agency lacks the resources to conduct the 
individualized reviews recommended as a central component of 
implementing ODP. In the broadcast licensing context, the Commission 
indicated that the type of individualized consideration that would be 
required under an ODP standard could prove to be ``administratively 
inefficient, unduly resource intensive, and inconsistent with First 
Amendment values.'' We do not find the ACDDE's current filing to have 
assuaged those concerns. In the Part I Competitive Bidding Rules 
proceeding, the Commission stated that ``it is not clear what proof 
should be required from those individuals or entities seeking to 
receive such a preference or how to apply the ODP on a neutral basis. 
We are also concerned that our review of such a claim would involve a 
costly and lengthy process.'' While the ACDDE did offer suggestions for 
the administration of an ODP standard, the standard remains inherently 
subjective and, we believe, inappropriate for the broadcast licensing 
context. Consequently, we affirm our earlier decisions regarding the 
administrative infeasibility of an ODP standard. For all of the reasons 
stated above, we decline to implement an ODP standard for the incubator 
program.
    24. In addition to advocating for the use of ODP as the eligibility 
standard, the ACDDE also proposes that ``mission-based entities'' and 
Native American Nations be automatically presumed to be eligible for 
incubation. Although the ACDDE's incubator proposal and the benefits 
that it would provide incubators--namely the award of tax certificates 
for stations donated to a mission-based entity or Native American 
Nation--are not the same as the incentives that we adopt today, we 
share the ACDDE's goal of including diverse participants in our 
incubator program. We encourage them to apply and establish clearly in 
their certified supplemental statements how their participation in the 
incubator program is consistent with the goals of the program. We 
recognize that, unlike small, aspiring, and struggling broadcasters, 
many mission-based entities and Native American Nations have broader 
missions that encompass much more than broadcasting and thus these 
entities may be less likely to learn of our incubator program absent 
education and outreach by the Commission. Therefore, the Commission 
will conduct outreach to help encourage participation in the incubator 
program by mission-based entities and Native American Nations that meet 
the program's eligibility requirements. We decline, however, to adopt 
the proposed automatic presumption of eligibility.
    25. Safeguards Associated with Eligibility Standard. We recognize 
that the ACDDE has raised concerns about the potential for abuse of an 
eligibility standard based on the Commission's new entrant bidding 
credit. In particular, the ACDDE references the Commission's 
comparative broadcast hearings, long since discontinued, in which the 
ACDDE asserts spousal and parent-child relationships were used to 
``game the system and defeat minority new entrants.'' The ACDDE 
acknowledges, however, that the new entrant definition might be useful 
in promoting minority and female broadcast ownership if the Commission 
were able to address these ``legacy applicant'' concerns.
    26. To address such concerns, we adopt certain safeguards in 
conjunction with our two-pronged eligibility standard. As part of the 
application process, which is described in greater detail below, 
potential incubated entities must demonstrate that they have met both 
the numeric and revenue limitation for the preceding three years. Thus, 
an entity must not only comply with the eligibility standard at the 
time it applies to participate in a qualifying incubation relationship, 
but also for the three years prior to its application. NAB proposed a 
one-year certification period, which would require that applicants 
certify that, for the year prior to applying for participation in the 
incubator program, they have met the applicable eligibility standards 
in terms of the number of stations owned. Such a certification would, 
in NAB's view, help to discourage any potential manipulation of the 
program by applicants who dispose of financial interests in additional 
broadcast properties prior to applying for participation in the 
incubator program. NAB further proposes that program applicants be 
required to certify compliance with any revenue eligibility standards 
that are adopted. We concur with NAB that a certification requirement 
will safeguard our eligibility concerns; however, we find that a longer 
3-year period is more likely to deter any fraud or manipulation than a 
shorter timeframe.
    27. In addition, as part of the incubator program application 
process, we will require a potential incubated entity to include in its 
application a certified statement attesting that it would be unable to 
acquire a station, or continue to operate successfully a station 
proposed for incubation that it already owns, absent the proposed 
incubation relationship and the funding, support, or training provided 
thereby. The Commission, in its discretion, may investigate the 
accuracy of the certification if it is made aware of information that 
suggests that the potential incubated entity does not, in fact, need 
the incubation relationship to purchase and operate a broadcast radio 
station. All applicants will further be required to detail any 
attributable interests in broadcast stations held by family members 
pursuant to FCC Forms 301, 314, and 315, thereby revealing any familial 
or spousal relations as part of

[[Page 43778]]

the application process. If at any point the Commission determines that 
the certified statement contained misrepresentations, both the 
incubated and incubating entities may suffer negative consequences. 
Pursuant to the Commission's Character Policy Statement, we would 
examine the qualifications of both parties to hold or retain broadcast 
licenses.
    28. The incubator program is designed to assist those new or small 
broadcasters who do not have access to the necessary capital or 
technical expertise absent a qualifying incubation relationship. Thus, 
an individual who provides evidence of a meager bank account and 
attests to limited resources might subsequently be disqualified from 
the program, while also being subject to any penalties associated with 
making misrepresentations to a federal agency, if it is later 
determined that this individual also had access to a large personal 
trust fund designed to assist him or her in business ventures. 
Likewise, the incubating entity affiliated with this incubation 
relationship may find its reward waiver withheld or revoked, depending 
on whether it knew, or should reasonably have known, about the 
incubated individual's access to such a trust fund or other assets. We 
expect that the possibility of negative consequences for both the 
incubated and incubating entities for any misrepresentations regarding 
the incubated entity's need for the program should serve as a 
sufficient deterrent against such behavior.

Qualifying Incubation Relationships

    29. In this section, we adopt requirements for qualifying 
incubation relationships. As discussed below, we will require that 
qualifying incubation relationships provide the incubated entity with 
the financial and operational support it lacks (including management 
training), that such relationships include an option for the incubated 
entity to purchase the incubating entity's equity interest in the 
incubated station and/or terminate the incubating entity's creditor-
debtor relationship with the incubated entity, and that the standard 
time period for such relationships be three years, with the option to 
extend for up to another three years. We also adopt certain safeguards 
to ensure that the incubated entity retains control of the incubated 
station.
    30. The NPRM sought comment on the combination of activities that 
should be required to qualify as incubation and whether there should be 
any conditions or limitations on the financial and operational aspects 
of a qualifying incubation relationship. Noting that proponents had 
previously proposed that an incubator program include management or 
technical assistance, loan guarantees, direct financial assistance 
through loans or equity investment, training, and business planning 
assistance, the NPRM asked whether the program should also include 
other activities, such as donating stations to certain organizations or 
arrangements whereby a new entrant gains operational experience without 
first acquiring a station (e.g., pursuant to a Local Marketing 
Agreement (LMA)). In addition, the NPRM asked what additional 
safeguards the Commission should include in order to ensure that the 
incubated station licensee retains control of its station. We conclude 
that qualifying incubation relationships are those in which an 
experienced AM or FM broadcaster provides an eligible new or small 
broadcaster with support that it cannot obtain on its own and that is 
essential to its ability to independently own and operate a full-
service AM or FM station. We expect qualifying incubation relationships 
to provide the incubated entity with financial and operational support 
(including management training) that it needs and that will ultimately 
enable the incubated entity to own and operate independently either the 
incubated full-service AM or FM station or another full-service AM or 
FM station acquired at the completion of the program. We allow parties 
the flexibility to tailor each proposed incubation relationship to the 
specific needs of the incubated entity while adopting certain 
safeguards to ensure that the incubated entity retains full control of 
the incubated station.
    31. Financial and Operational Support. Commenters that support an 
incubator program agree that the incubating entity should provide the 
financial and operational support that the incubated entity needs and 
that the parties should have flexibility to determine the specific 
combination of elements needed to support the incubated station 
according to its particular circumstances. Requiring the incubating 
entity to provide the financial and operational support that the 
incubated entity needs is consistent with the goal of the incubator 
program, which is to help address the lack of access to capital and 
operational expertise faced by potential new entrants and small 
businesses, as discussed above. The record also indicates, however, 
that there may be some benefit to requiring an incubated entity to make 
a financial contribution to the incubation relationship to solidify its 
own commitment towards the endeavor.
    32. Rather than dictate specific minimums for the financial and/or 
operational support that an incubating entity must provide, we conclude 
that the better approach is to give parties the flexibility to tailor 
an incubation plan to the needs of the incubated entity, the realities 
of the marketplace, and the needs of the community in which the 
incubated station operates. For example, an incubated entity that 
already owns and operates an AM or FM station will likely need less 
financial and operational support than a first-time owner of a 
broadcast station. Similarly, an incubated entity that has previously 
programmed a station and sold advertising time will likely need less 
operational support than a new owner with less experience. Thus, the 
financial and operational needs of each incubated entity will likely 
differ depending on how much experience it has in broadcasting and its 
other assets. It is possible that in some cases, an incubated entity 
will just need one form of support or the other--i.e., financial or 
operational. For instance, if a broadcaster donates a station to a 
mission-based entity, as suggested by the ACDDE, the broadcaster may 
not necessarily need to provide any additional financing to fund the 
incubation activities. Nevertheless, a broadcaster that chooses to 
incubate in this manner would still be required to provide the 
incubated station with operational support, as discussed herein, to 
enable the mission-based entity to operate the station independently in 
the long term.
    33. These are just a few examples of how the specific financial and 
operational needs of an incubated entity may differ depending on the 
circumstances. We emphasize that qualifying incubation relationships 
must provide an incubated entity with the level of support needed to 
enable the incubated entity to own and operate a full-service AM or FM 
station independently at the conclusion of the qualifying incubation 
relationship. Depending on the needs of the incubated entity, a 
qualifying incubation relationship will likely provide or guarantee a 
substantial share of the financing needed to acquire the incubated 
full-service AM or FM station and operate it effectively. The 
incubation relationship must ensure that the incubated entity has 
sufficient financial resources to hire enough employees to oversee the 
operation of the station, acquire and produce station programming, 
acquire and maintain

[[Page 43779]]

station equipment and facilities, etc. While the incubating entity may 
often provide the bulk of the financial resources, we do expect the 
incubated entity to contribute a substantial amount of funding to 
support the incubated station. We find that requiring the incubated 
entity to assume some of the financial risk by making a meaningful 
financial contribution to the incubation relationship will provide 
further assurance of the incubated entity's commitment to the success 
of the relationship. Consequently, as discussed below, we require the 
incubated entity to hold a minimum equity interest in the incubated 
station consistent with the control test contained in our existing 
revenue-based eligible entity definition.
    34. For operational support, a qualifying incubation relationship 
will likely also provide operational assistance and intensive training 
in the following areas: Engineering/technical operations, office 
support, sales, programming, and management, including business 
planning, finances, and administration. These areas of operational 
support encompass those that commenters have proposed and that 
proponents have traditionally conceived of as part of a comprehensive 
incubator program.
    35. The specific components of a qualifying incubation relationship 
may vary based on the amount of industry experience an incubated entity 
has previously obtained, the incubating entity's existing resources, 
and the specific needs of the station to be incubated. Parties may be 
able to demonstrate that an incubated entity already has significant 
experience in some of the areas listed above and that a qualifying 
incubation relationship for that entity requires fewer components. 
Regardless of which of these specific components are included in a 
particular incubation relationship, the support required by a 
qualifying incubation relationship must ultimately enable the incubated 
entity to own and operate independently either the incubated station or 
another full-service AM or FM station at the conclusion of the 
incubation relationship. We expect that an incubation relationship 
where both parties have established a plan for the incubated entity to 
own and operate independently either the incubated station or a newly 
acquired full-service AM or FM station at the end of the incubation 
relationship, with progress indicators identified as part of a contract 
between the parties, holds the greatest likelihood of success. As 
discussed below, after the second year of incubation we will not allow 
any brokering or sharing arrangements involving the incubated station 
to ensure that the incubated entity demonstrates its ability to operate 
the incubated station independently prior to the end of the 
relationship.
    36. Option to Buy Out Incubating Entity or Obtain Assistance in 
Acquiring a New Station. We agree with the ACDDE's proposal that 
qualifying incubation relationships must include an option that 
provides the incubated entity with the right, but not the obligation, 
to purchase the incubating entity's equity interest in the incubated 
station, if it holds one. The price and terms of this buy-out option 
must be commercially reasonable and must not strongly favor the 
incubating entity, and the purchase price must not exceed the station's 
fair market value. The fair market value must be determined through 
customary valuation methods that rely on audited financial statements 
prepared by a certified public accountant, real estate appraisals, and 
other information such as market size, total radio dollars available 
market-wide, market growth, market competition, and the potential for 
signal upgrades, to the extent such information is relevant to 
determining the fair market value of the station. At the end of the 
qualifying incubation relationship, the incubated entity may decide not 
to exercise this option and choose instead to retain its existing 
controlling interest in the incubated station. Alternatively, the 
incubated entity may choose to sell its interest in the incubated 
station and use the proceeds from sale to acquire another full-service 
AM or FM station. In that case, we expect the incubating entity to help 
the incubated entity identify a full-service AM or FM station to buy 
and obtain the financing necessary to purchase the station. Absent a 
showing at the end of the qualifying incubation relationship that the 
incubated entity holds a controlling interest in the incubated station 
or a newly acquired full-service AM or FM station, the incubating 
entity will not be eligible to receive a waiver of the Local Radio 
Ownership Rule.
    37. By requiring an option as described in the preceding paragraph, 
we ensure that, before the incubating entity is eligible to receive a 
waiver, the incubated entity has acquired independent ownership of a 
full-service AM or FM station, consistent with our program goal of 
introducing new, independent broadcasters to the industry. Because our 
approach will provide multiple paths for an incubated entity to achieve 
the goal of independent station ownership, we conclude that our 
approach will not unduly direct or limit the incubated entity's 
activities following its participation in the program, thereby 
preserving options as NAB suggests.
    38. Duration of Qualifying Incubation Relationships. We agree with 
the ACDDE that in most cases a three-year incubation period will 
provide enough time for an incubated entity to develop the skills and 
expertise needed to be able to own and operate a broadcast station 
independently. NAB offers a similar recommendation, stating that 
broadcasters' experience in this arena suggests that the term of an 
incubation relationship should be no less than three years but that an 
incubated entity may need additional time to obtain the necessary funds 
or expertise to be self-sufficient, or that an extension may be needed 
due to marketplace or financing conditions. While we agree that an 
incubated entity may need more than three years to develop the 
requisite operational expertise or secure the financing needed to be 
self-sufficient, we believe we must adopt a maximum time limit of six 
years for qualifying incubation relationships so that the incubated 
entity has an incentive to develop the skills and expertise needed to 
operate a full-service AM or FM station independently.
    39. As the ACDDE notes, there may also be instances in which an 
incubated entity makes exceptional progress towards becoming an 
independent owner and operator of the incubated station and seeks to 
acquire full equity ownership and independent control of the incubated 
station before the incubation term ends. In such circumstances, we will 
consider granting requests from parties seeking to conclude their 
incubation relationship before the end of the term.
    40. Accordingly, we will require that the incubation agreement 
provide that the parties must perform the incubation activities for 
three years, although the parties may jointly seek to conclude their 
incubation relationship early or request a one-time extension of an 
additional three years or less, depending on need, upon a showing of 
good cause. The three-year time period will begin on the effective date 
of the incubation contract. Extension requests must be submitted before 
the initial term expires. We direct the Media Bureau (Bureau) to find 
good cause to grant an extension where (1) the parties need additional 
time to incubate the full-service AM or FM station as discussed below, 
or (2) the parties need more time to identify a full-service AM or FM 
station for the incubated entity to acquire or additional time for the 
incubated entity to close on the pending

[[Page 43780]]

acquisition of a full-service AM or FM station. The parties to the 
incubation contract must demonstrate that by the end of the extended 
term they will have resolved the issues that resulted in the need for 
more time and that the incubated entity will be able to own a full-
service AM or FM station and have demonstrated its ability to operate 
such a station independently. Unless otherwise specified by the parties 
and approved by the Commission, the terms of the initial incubation 
contract will govern the incubation relationship during any Commission-
approved extension period.
    41. Independence of Incubated Entity. The incubator program is 
designed to provide a ``hands on'' learning process in which the 
incubated entity learns by ``doing'' with the benefit of a mentor. To 
ensure that the incubated entity derives the maximum benefit from the 
training and mentoring provided by the incubating entity, we require 
that the incubated entity be the licensee of the incubated station and 
maintain ultimate authority over station personnel, programming, and 
finances. It is by engaging in station management activities 
independently that the incubated entity will best develop its skills. 
As NAB notes, ``this level of independence is essential to promoting 
the new entrant's business growth and experience.'' Indeed, the goals 
of the incubator program, including encouraging new and diverse 
ownership of broadcast stations, require that we adopt safeguards to 
ensure that the incubated entity retains control of the incubated 
station and remains independent of the incubating entity and thus 
develops the skills necessary to own and operate the station 
independently. While the incubating entity will devote considerable 
financial, operational, managerial, and technical resources during the 
incubation relationship, the incubated entity must retain control of 
the incubated station and remain independent of the incubating entity 
to ensure it derives the full measure of intended benefits, in the form 
of ``hands on'' learning, during the entire incubation relationship.
    42. Below, we adopt certain safeguards to ensure that the incubated 
entity has the requisite level of autonomy during the incubation 
relationship. As a threshold matter, we require the incubated entity to 
satisfy a control test as discussed below, consistent with our revenue-
based eligible entity definition. In addition, we place limits on the 
use of brokering and sharing arrangements. We agree with the ACDDE that 
JSAs and shared service agreements (SSAs) may be used only to assist 
in, and must not be used to substitute for, incubation. Finally, both 
to promote the incubated entity's autonomy and to guard from potential 
conflicts of interest, we place limits on the ability of individuals to 
take on management or oversight positions in both the incubating entity 
and incubated entity.
    43. First, we require the incubated entity to satisfy the following 
control test consistent with our existing revenue-based eligible entity 
definition, upon which we are basing the second prong of the 
eligibility standard for our incubator program as discussed above. 
Specifically, we require that the incubated entity hold more than 50 
percent of the voting power of the licensee of the incubated station, 
and if the licensee is not a publicly traded company (which will almost 
assuredly be the case), a minimum of either 15 percent or 30 percent of 
the equity interests, depending on whether someone else owns or 
controls more than 25 percent of the equity interests. Both the ACDDE 
and NAB agree that the incubated entity must hold more than 50 percent 
of the voting power to control the incubated station. The ACDDE, 
however, also calls for the incubated entity to hold a minimum equity 
interest of 20 percent. Veteran broadcaster Skip Finley proposes that 
the Commission limit the investment of the incubating entity to 25 
percent, which he argues would not permit control or, standing alone, 
create an attributable ownership interest. We conclude that applying 
the control test in our existing eligible entity rule will best ensure 
that the incubated entity retains control of the incubated station 
while still giving the parties some flexibility to establish incubation 
relationships that suit their specific needs. Also, as noted above, we 
find that it is important for the incubated entity to have some minimum 
``skin in the game'' as a sign of its commitment to the success of the 
incubation relationship. In this regard, we find that the minimum 
equity holding requirements of the control test contained in the 
revenue-based eligible entity definition are appropriate. Using these 
existing requirements should facilitate both participation in and 
administration of the incubator program, as the requirements are 
already familiar to licensees. Hence, as discussed more fully below, 
all incubation applications must demonstrate that control will rest 
with the incubated entity and that the incubated entity meets the 
requisite minimum holding level discussed herein.
    44. We remind parties that our rules prohibit unauthorized 
transfers of control, including de facto transfers of control. Thus, 
even if the incubated entity has a controlling interest in the 
incubated station, we will also look to whether the incubated entity 
maintains control over the station's core operations, including 
programming, personnel, and finances, when addressing questions 
relating to control.
    45. To ensure that the incubated entity retains autonomy over the 
incubated station's core operating functions so as to gain the 
necessary level of operational expertise, and in light of concerns 
raised by the ACDDE and REC Networks, we place certain restrictions on 
the use of LMAs, JSAs, and SSAs. Our current attribution standards 
recognize that same-market radio LMAs and JSAs above a certain 
percentage of the station's broadcast day may confer on the brokering 
station the potential to exert a significant degree of influence over 
core station operating functions (i.e., programming decisions). 
Specifically, our attribution standards regard as attributable 
ownership interests same-market radio LMAs and JSAs in which the 
brokering station brokers more than 15 percent of the broadcast time or 
sells more than 15 percent of the advertising time per week. Given our 
rationale for attributing these arrangements and the concerns raised in 
the record of this proceeding, we adopt the following safeguards.
    46. First, to ensure that the incubated entity retains control of 
the programming aired on the incubated station, we prohibit LMAs 
involving the incubated station. As defined in our rules, an LMA is any 
agreement that involves ``the sale by a licensee of discrete blocks of 
time to a `broker' that supplies the programming to fill that time and 
sells the commercial spot announcements in it,'' regardless of how the 
agreement is titled. Second, to ensure that the incubated entity is 
able to gain operational expertise by performing the core operations of 
the incubated station, we limit any JSAs or SSAs involving the 
incubated station to the first two years of the initial incubation 
period. Pursuant to the definitions in our rules, we consider a JSA to 
be any agreement with the licensee of a brokered station that 
authorizes a broker to sell advertising time for the brokered station, 
and we consider an SSA to be any agreement or series of agreements in 
which (i) a station provides any station-related services to a station 
that is not directly or indirectly under common de jure

[[Page 43781]]

control permitted under the Commission's regulations, or (ii) stations 
that are not directly or indirectly under common de jure control 
permitted under the Commission's regulations collaborate to provide or 
enable the provision of station-related services. While our attribution 
standards do not regard SSAs as attributable ownership interests, we 
are concerned that allowing these arrangements to be used for the full 
duration of an incubation relationship could deprive the incubated 
entity of its incentive to gain the operational expertise needed to 
operate the station independently at the end of the relationship. 
Permitting limited use of JSAs and SSAs appropriately balances 
broadcasters' representations that these arrangements can make 
incubation more successful with the need to ensure that each incubated 
entity learns how to perform essential station functions independently 
in order to be viable in the long term as an independent broadcaster. 
We do not believe that prohibiting LMAs and restricting the use of JSAs 
and SSAs will reduce the utility of our program for incubated entities, 
as the record and our experience indicate that new owners of radio 
stations need assistance primarily with financing and technical issues, 
rather than programming and advertising sales.
    47. Moreover, these safeguards will enable the parties to evaluate 
whether the incubated entity is prepared to operate independently 
before the incubation period has ended and while the incubating entity 
remains contractually obligated to provide support. By requiring that 
the incubated entity actually obtain or produce programming, sell 
advertising, and perform other core operating functions for the 
incubated station for at least one full year prior to the expiration of 
the incubation relationship, these protections will provide for a more 
informed assessment of the incubated entity's progress and any areas 
where it needs additional training and support to be viable as an 
independent owner and operator of the incubated station or another 
full-service AM or FM station. The incubated entity's experience 
performing core operating functions may provide a persuasive 
justification for extending the incubation relationship if the parties 
determine that more time is needed to incubate the station; thus, we 
are likely to rely on the parties' assessment that an extension of the 
incubation relationship is needed. While we are allowing limited use of 
JSAs and SSAs, we emphasize that these agreements, if used, must be 
accompanied by proper training in the relevant area(s)--e.g., 
administrative, technical, sales, etc.--covered by any such 
arrangement(s) involving the incubated station.
    48. Finally, we require that none of the officers, directors, 
managing partners, or managing members of the incubated entity hold an 
attributable interest in or be an employee of the incubating entity. We 
are concerned that allowing an employee or an attributable interest 
holder of the incubating entity to serve as an officer, director, 
managing partner, or managing member of the incubated entity may 
jeopardize the independence of the incubated station given the 
significant conflicts of interests that could arise for these 
individuals and the significant authority and potential for influence 
they would wield over the incubated station. While U.S. antitrust laws 
prohibit, with certain exceptions, one individual from serving as an 
officer or director of two competing corporations, we believe that an 
additional safeguard is needed to address circumstances that may be 
exempt from or not covered by the antitrust laws, such as where the two 
companies are not competitors, where either company is not a 
corporation or does not meet certain financial thresholds, or where an 
officer or director of one company is an employee but not an officer or 
director of the other company. We note that NAB and MMTC previously 
stated that the incubating entity and the incubated entity should not 
share common officers or directors. As discussed above, we believe that 
an even stronger safeguard is necessary to ensure the independence of 
the incubated station.
    49. Limitations on Incubation Relationships Per Market. We will 
allow each incubating entity to incubate no more than one station per 
market, as defined for purposes of determining compliance with the 
Local Radio Ownership Rule. This will help ensure that the benefits 
that flow from our incubator program reach multiple markets and that 
our program is not used to restrict the limited number of local 
broadcast radio channels to one or a few radio station owners. While an 
established broadcaster that is already in an approved incubation 
relationship may not concurrently incubate multiple stations in the 
same market, the incubating broadcaster may apply to incubate a 
different station in another market. Consistent with the certifications 
and other requirements discussed herein, the established broadcaster 
would need to demonstrate that it will provide the resources necessary 
to incubate the additional station(s). Moreover, a prospective 
incubating entity may seek to incubate a station in a market where 
there is already an ongoing incubation relationship involving a 
different station if the prospective incubating entity is not a party 
to or participant in that ongoing relationship.

Benefit To Incubating Entity

    50. In this section, we discuss the benefit that an established 
broadcaster will be eligible to receive for successfully completing a 
qualifying incubation relationship, namely a waiver of the Local Radio 
Ownership Rule. We discuss below the terms associated with the waiver 
and the standard for granting such a waiver.
    51. Acknowledging that proponents of a broadcast incubator program 
have previously suggested that incubating entities receive a waiver of 
our local broadcast ownership rules in exchange for participating in an 
incubator program, the NPRM sought comment on how to structure the 
waiver element or other appropriate incentive. In particular, the NPRM 
sought comment on whether the waiver should allow the incubating entity 
to obtain an otherwise impermissible non-controlling, attributable 
interest in the incubated station or to acquire a different station in 
the same market or any similarly sized market. Among other things, the 
NPRM also sought comment on whether a waiver should be tied to the 
success of the incubation relationship, whether the waiver should 
continue when the incubator program ends, and whether the waiver should 
be transferrable if the incubating entity sells a cluster of stations 
that does not comply with the ownership limits at the time.
    52. Why a Reward Waiver as Opposed to Another Type of Benefit. We 
conclude that our incubator program must provide a meaningful economic 
incentive in order to encourage established broadcasters to commit the 
substantial financial and other resources needed to incubate a new 
entrant successfully as discussed below. We recognize that, without 
active participation by incumbent broadcasters, any incubator program 
we design will be doomed to fail. Both supporters and opponents of an 
incubator program agree that a strong incentive is needed to entice 
prospective incubating entities. Indeed, the ACDDE states that an 
important goal of the incubator program is to create a sufficient 
incentive for established broadcasters to incubate new entrants, 
allowing established broadcasters to

[[Page 43782]]

grow their businesses while sharing with others the opportunities they 
may have enjoyed earlier in their careers.
    53. There is, however, a divergence of views over what would be the 
best incentive. According to the broadcasters, a waiver of the local 
broadcast ownership rules is the appropriate incentive. The ACDDE, on 
the other hand, advocates for two forms of tax relief: A tax 
certificate entitling the incubating entity to defer capital gains 
taxes on the sale of its interest in the incubated station upon 
reinvestment in a comparable property, and a tax credit of an amount 
equal to the appraised fair market value of the station if the 
incubating entity donates the station to a mission-based entity or a 
Native American Nation. REC Networks proposes a regulatory fee 
exemption.
    54. We conclude that allowing an incubating entity to seek a waiver 
of the Local Radio Ownership Rule, including the AM/FM subcap (reward 
waiver), in exchange for successfully completing a qualifying 
incubation relationship will provide a meaningful economic incentive to 
established broadcasters and thereby encourage them to incubate a new 
entrant. Those broadcasters who have the experience and resources 
needed to incubate a new or small broadcaster successfully are likely 
to be longtime station group owners that may be at or near the local 
ownership limits in one or more markets. Consequently, based on the 
record in this proceeding, we expect that a waiver of the Local Radio 
Ownership Rule will be sufficiently attractive to these prospective 
incubating entities to entice them to participate in the incubator 
program. While some commenters assert that granting waivers of local 
ownership rules to incubating entities could harm rather than promote 
ownership diversity, we find that the record demonstrates a waiver of 
the Local Radio Ownership Rule is the benefit within our authority that 
will best provide a sufficient incentive for established broadcasters 
to participate in our incubator program. In establishing requirements 
for the use of reward waivers under our incubator program for full-
service AM and FM stations, we balance our goal of preserving our local 
radio ownership limits with the need to provide enough flexibility to 
foster participation in our program by incubating entities. We conclude 
that the requirements we adopt herein regarding the use of reward 
waivers will help ensure that they do not work against our local radio 
ownership limits and that our incubator program preserves a market 
structure that facilitates and encourages new entry into the local 
media market, as discussed below.
    55. We decline to rely on regulatory fee exemptions or tax 
incentives to encourage participation in our incubator program. With 
regard to a regulatory fee exemption, we agree with the 22 ACDDE 
Members who filed reply comments that a six-to-twelve-month exemption 
of this sort would not provide a sufficient incentive for established 
broadcasters to incubate new entrants. In addition, we note that the 
Commission has previously found that it does not have the authority to 
waive or defer fees categorically.
    56. As for tax certificates and tax credits, we agree that they can 
provide an incentive for established broadcasters to enter qualifying 
incubation relationships and that some believe tax certificates have 
been successful in the past in bringing new and diverse entrants to the 
broadcasting industry, but we are unable to use such measures to 
encourage participation in our incubator program absent authorization 
from Congress. Since the prior tax certificate program was eliminated 
in 1995, supporters have from time to time advocated for the return of 
the program. Indeed, the Commission itself has previously supported the 
effort to reinstate tax certificates as a means for increasing 
ownership diversity. To date, however, those efforts have been 
unavailing. Thus, rather than indefinitely delaying implementation of 
an incubator program pending Congressional introduction and passage of 
the necessary tax legislation, we find that it is in the public 
interest to proceed with the program we implement today, which will 
provide a meaningful incentive for established broadcasters to incubate 
new entrants that genuinely need financial and/or operational support 
to become independent owners. Of course, following our action today, 
Congress would be able to adopt legislation either authorizing or 
mandating the use of tax certificates and tax credits in our incubator 
program, either in addition to or in lieu of reward waivers, should it 
so choose.
    57. Timing and Duration of Reward Waiver. The reward waiver will be 
available to the incubating entity after the successful completion of a 
qualifying incubation relationship. The process for determining whether 
an incubation relationship has been successful is described more fully 
below. While NAB proposes that the reward waiver be available to the 
incubating entity prior to the end of the incubation relationship, we 
believe that an incubating entity will have a much stronger incentive 
to cultivate the incubated entity as an independent broadcaster if the 
reward waiver is available to the incubating entity only after it 
successfully completes the qualifying incubation relationship. To use 
its reward waiver, the incubating entity must seek to acquire a full-
service AM or FM station and file the waiver request within three years 
after the successful conclusion of the qualifying incubation 
relationship. We believe it is necessary to require that each reward 
waiver be used in proximity to the associated incubation relationship 
in order to aid our tracking and recordkeeping, and so the Commission 
is able to consider the availability of such benefits in the context of 
ownership rules and competition in radio markets close in time to when 
the incubation relationship occurs. We also believe that the incubating 
entity will have every incentive to acquire a full-service AM or FM 
station using the reward waiver as quickly as possible following the 
successful conclusion of the qualifying incubation relationship. 
Therefore, we reject NAB's assertion that an unused reward waiver 
should not expire.
    58. We do, however, recognize that retaining the value of a station 
cluster that includes a reward waiver is an important part of the 
benefit afforded to an incubating entity. Consequently, as long as the 
cluster that is initially formed using the reward waiver is transferred 
intact, we will permit the waiver to be transferred with the station 
group. Permitting transfer of the initial cluster preserves any 
increase in value achieved by the incubating entity for its efforts in 
bringing a new broadcaster into the market. We do not, however, permit 
the waiver to move separately from the station cluster, as we also seek 
to ensure that those who have not advanced diversity via participation 
in the program do not receive a windfall. Consequently, the waiver will 
continue in effect as long as the cluster remains intact. Further, a 
single party may not hold the benefit of more than one waiver in a 
market granted under our incubation program, meaning that a station 
cluster that exceeds the applicable ownership rule by virtue of an 
incubation reward waiver may not be transferred to an entity that 
already holds such a waiver in the market. In addition, we will permit 
the incubating entity to use its reward waiver to engage in an in-
market station swap, which will not impact ownership diversity in the 
market or allow a broadcaster to obtain a reward waiver without making 
a

[[Page 43783]]

countervailing contribution to ownership diversity.
    59. Markets Where Reward Waiver May Be Used. We will allow an 
incubating entity to use a reward waiver to acquire an otherwise 
impermissible attributable interest to: (i) Purchase a full-service AM 
or FM station located in the same market as the incubated station, (ii) 
purchase a full-service AM or FM station located in a market that is 
comparable to the market in which the incubation occurred, as defined 
below, or (iii) if the incubated entity chooses not to exercise its 
option to purchase the incubating entity's non-controlling interest in 
the incubated station, to retain an otherwise impermissible 
attributable interest in the incubated station after the incubation 
relationship ends (including acquiring a controlling interest in the 
incubated station if the incubated entity acquires a controlling 
interest in another full-service AM or FM station). An incubating 
entity that uses a reward waiver in a comparable market may also choose 
to retain its non-controlling attributable interest in the incubated 
station if permitted by our ownership rules. Commenters that support 
the use of waivers in our incubator program agree that we should allow 
an incubating entity to use a reward waiver in a market other than the 
incubation market, and we believe this will expand opportunities for 
incubation by not limiting participants only to markets where the 
incubating entity is at or near the applicable local radio ownership 
limits. To preserve competition in even the smallest markets, however, 
we will not allow an incubating entity to use a reward waiver in a 
market where the waiver would result in the incubating entity holding 
attributable interests in more than 50 percent of the full-service, 
commercial and noncommercial radio stations in a market. Thus, 
consistent with our existing Local Radio Ownership Rule, an incubating 
entity will not be able to hold an attributable interest in more than 
50 percent of the full-service, commercial and noncommercial radio 
stations in a market unless the combination of stations comprises not 
more than one AM and one FM station. Given our decision to allow a 
reward waiver to be used only if the incubating entity will not hold an 
attributable interest in more than 50 percent of the full-service, 
commercial and noncommercial radio stations in a market, we do not 
think it is necessary to adopt a cap on the in-market revenue share of 
station combinations resulting from the use of a reward waiver as one 
commenter proposes. We believe that a cap on the in-market revenue 
share of station combinations, which is more likely to change from year 
to year, would not be as effective as a cap on the share of stations 
that an incubating entity may own in a reward market.
    60. We will consider a market to be ``comparable'' to the market 
where the incubation relationship occurred if, at the time the 
incubating entity seeks to use the reward waiver, the chosen market and 
the incubated market fall within the same market size tier under our 
Local Radio Ownership Rule and the number of independent owners of 
full-service, commercial and noncommercial radio stations in the chosen 
market is no fewer than the number of such owners that were in the 
incubation market at the time the parties submitted their incubation 
proposal to the Commission. Restricting an incubating entity that uses 
a reward waiver to purchase a station in another market to a comparable 
market will help ensure that the local impact of the reward waiver on 
the number of independent owners is similar to that of the incubated 
station in its market. Thus, it balances our desire to limit the impact 
of any potential consolidation that could result from the use of a 
reward waiver with our goal of expanding broadcast station ownership 
opportunities for small businesses and potential new entrants by 
allowing an incubating entity to incubate in markets other than those 
in which it is at or near the applicable local radio ownership caps. To 
the extent NAB seeks even greater flexibility and proposes that we 
permit an incubating entity to use a reward waiver in any market it 
wishes, we reject that element of NAB's proposal. For the reasons 
discussed above, we believe that the better approach is to require that 
a reward waiver be used either in the same market where the incubation 
relationship occurred or in a comparable market.
    61. A group of commenters contend that our definition of comparable 
market could result in applying a reward waiver in a much larger market 
than that in which incubation occurred and propose limiting the 
definition of a ``comparable market'' to those markets ranked ``5 Up/5 
Down'' from the incubation market based on Nielsen's population 
rankings. We conclude, however that the proposed definition would not 
necessarily lead to incubation and use of waivers in markets that are 
truly more ``comparable'' with respect to the number of stations and 
independent owners than the definition we adopt above. As an initial 
matter, we note that the Nielsen rankings are based on the population 
of the relevant market, not on the number of stations in a given market 
or the number of independent owners. Thus, the markets five up or five 
down from the incubation market might not have the same number of 
stations or independent owners as the incubation market--the very 
factors we find most relevant in assessing the diversity of the market. 
For example, according to Nielsen data from Fall 2017, Baltimore is 
ranked as market 21 and St. Louis is ranked as market 23, yet Baltimore 
has only 35 stations, while St. Louis has 68 stations, resulting in the 
markets being subject to different ownership caps under our rules. In 
crafting our standard, we focused primarily on preventing the potential 
for ownership consolidation in a market with fewer stations and 
independent owners than the market in which the incubation relationship 
added a new entrant. In addition, we note that ownership interests and 
circumstances vary widely among incumbent broadcasters, and it is not 
self-evident that an incubating entity will seek to use a reward waiver 
in the market with the largest population possible. Rather, we expect 
the decision will be driven by where the group owner faces ownership 
restrictions or wishes to grow a successful cluster. Finally, it is 
possible that the incubating entity does not own any stations in 
markets that are within five up or five down from the incubation 
market, in which case it would have no flexibility to use the reward 
waiver. In this regard, we agree with NAB that the ``5 Up/5 Down'' 
proposal is ``unduly restrictive'' and could have the effect of 
inhibiting participation by potential incubating broadcasters. For all 
of the foregoing reasons, therefore, we decline to adopt the ``5 Up/5 
Down'' proposal.
    62. While we believe that incubating entities will have no 
difficulty using reward waivers under our market comparability 
standard, we may allow an incubating entity to use a reward waiver in a 
market that does not meet our comparability standard if, due to changed 
circumstances following the parties' submission of their incubation 
proposal, there is no longer a comparable market in which the 
incubating entity is at the local radio ownership cap or AM/FM subcap 
and the incubating entity demonstrates why doing so is consistent with 
the public interest. However, we anticipate that incubating entities 
will consider our market comparability standard when choosing a 
candidate to incubate given

[[Page 43784]]

our decision to allow an incubating entity to use its reward waiver in 
a market that meets that standard.
    63. We will allow an incubating entity that receives multiple 
reward waivers under our program (as a result of incubating multiple 
new entrants) to use no more than one reward waiver per market. This, 
as well as our decision above to grant an incubating entity a reward 
waiver only after the incubating entity successfully completes a 
qualifying incubation relationship and only in the same market as the 
incubated station or a comparable market, will help ensure that reward 
waivers do not work against our local radio ownership limits. Indeed, 
our local radio ownership limits promote competition and viewpoint 
diversity by ensuring a sufficient number of independent radio voices 
and by preserving a market structure that facilitates and encourages 
new entry into the local media market. The safeguards that we adopt 
today will help ensure that our incubator program preserves such a 
market structure while further promoting the entry of new and diverse 
voices in broadcast radio.
    64. Temporary Waiver for Purposes of Qualifying Incubation 
Relationships. In some cases, a prospective incubating entity may 
already hold attributable interests in the maximum number of radio 
stations permitted by our Local Radio Ownership Rule in the market 
where it seeks to engage in a qualifying incubation relationship. To 
ensure that, in such circumstances, a prospective incubating entity may 
still participate in our program, we will grant such an incubating 
entity a temporary waiver of the Local Radio Ownership Rule (including 
the AM/FM subcap) if the incubation relationship would result in the 
incubating entity holding an otherwise impermissible, non-controlling 
attributable interest in the incubated station. If such a waiver is 
necessary, the Bureau will consider and approve such a waiver when 
reviewing the incubation proposal. This temporary waiver will expire 
when the incubation relationship ends. At that point, if the incubating 
entity has met all its obligations under the approved incubation 
relationship and demonstrates that the relationship was successful as 
discussed below, the incubating entity will be able to obtain a reward 
waiver as discussed herein.
    65. Criteria for Granting a Waiver. We will review requests for 
both the reward and temporary waiver pursuant to Sec.  1.3 our rules, 
which requires a showing of ``good cause'' and applies to all 
Commission rules. With regard to the temporary waiver, the incubating 
entity and incubated entity must demonstrate, as described in greater 
detail below, that they are both eligible for, and intend to engage in, 
a qualifying incubation relationship. To receive a reward waiver, the 
incubating entity must demonstrate that it has completed a successful 
qualifying incubation relationship. Specifically, the incubating entity 
must certify (i) that it complied in good faith with its incubation 
agreement, as submitted to and approved by the Bureau, and the 
requirements of our incubator program discussed herein; and (ii) either 
that the incubated entity holds a controlling interest in the incubated 
station or a newly acquired full-service AM or FM station, or if the 
incubated station was a struggling station, that the incubation 
relationship has resolved the financial and/or operational difficulties 
that the owner of the previously struggling station faced prior to 
incubation and sought to remedy through the incubation relationship. If 
these criteria are met, we will consider the qualifying incubation 
relationship to be successful even if the incubating entity retains a 
non-controlling attributable interest in the incubated station when the 
relationship concludes, provided that the incubating entity's interest 
in the station complies with the applicable ownership limits or is 
permissible pursuant to a waiver of the local radio ownership limit 
(including the AM/FM subcap). After the incubating entity demonstrates 
that it has completed a successful qualifying incubation relationship 
as discussed herein, the incubating entity need not engage in any other 
actions to receive a reward waiver, beyond seeking to use the waiver in 
a comparable market and otherwise being in compliance with Commission 
rules and requirements, and there will be a rebuttable presumption that 
granting the waiver is in the public interest.
    66. We find that ``good cause'' exists to grant these temporary and 
reward waivers because doing so yields benefits to competition and 
ownership diversity in a local market that outweigh the impact on local 
competition in the market in which a waiver is granted. By tying grant 
of the reward waiver directly to station ownership by a new or 
previously struggling entity and restricting the use of reward waivers 
as discussed herein, any consolidation resulting from the use of a 
reward waiver will be limited and accompanied by the establishment of a 
new, or stronger, broadcaster in the same or a comparable market. 
Indeed, it is our determination herein that the public interest would 
not be served by strictly applying the Local Radio Ownership Rule 
(including the AM/FM subcaps) where an established broadcaster that 
engages in a qualifying incubation relationship seeks a waiver of the 
rule as discussed in this Order. While in the context of Sec.  1.3 
waiver requests, the Commission has considered showings of undue 
hardship, the equities of a particular case, or other good cause, in 
this particular context an applicant is required to make a narrower 
showing as discussed herein. If the applicant demonstrates that it has 
engaged in a successful qualifying incubation relationship and that 
grant of a waiver is consistent with the goals of our incubator 
program, there will be a rebuttable presumption that granting a waiver 
in the incubation market or a comparable market is in the public 
interest.

Procedures for Filing, Reviewing, and Monitoring Compliance of 
Incubation Relationships

    67. Before the parties commence a qualifying incubation 
relationship, the Bureau must determine that the relationship is 
designed to help a new entrant, small broadcaster, or struggling 
broadcaster gain the ability to own and operate a full-service AM or FM 
station independently and that the relationship otherwise qualifies for 
the program. This section lays out the process for submission and 
review of incubation relationship proposals and how compliance will be 
monitored during the incubation relationship. In addition, this section 
describes how the Bureau will determine whether a particular incubation 
relationship has been successful, such that the incubating entity is 
eligible to seek a reward waiver. We direct the Bureau to implement 
these procedures.
    68. As a threshold matter, we note that all incubation proposals 
must be based on prospective relationships. Incubating broadcasters 
will derive a significant benefit by receiving the reward waiver. 
Consequently, all incubation proposals must demonstrate a strong 
likelihood of promoting the ultimate program goal of bringing greater 
ownership diversity to the broadcast sector. This will be done by 
either enabling the incubated entity to own and operate a newly 
acquired full-service AM or FM radio station independently, or by 
improving the incubated entity's ability to retain and operate 
independently the struggling station it currently owns. To ensure that 
a proposed incubation relationship comports with the program's goal of 
broadening ownership diversity, we require prior Bureau review of the

[[Page 43785]]

proposal with an eye towards its adherence to the program requirements 
described in the instant order.

Bureau Review of Incubation Proposals

    69. Process for Submitting Incubation Proposals. There are several 
ways in which an incubation proposal might come before the Bureau. We 
expect that most incubation proposals will accompany an assignment, 
transfer of control, or construction permit application. We direct the 
Bureau authority to modify the FCC Forms, including instructions and 
worksheets, as needed to enable applicants to indicate on the relevant 
FCC Form that the submission involves an incubation proposal. Such 
applications seeking to transfer, assign, or obtain an authorization 
are subject to public notice and petitions to deny and informal 
objections under the Commission's rules, and in addition to reviewing 
such applications pursuant to its routine review processes, the Bureau 
will review accompanying incubation proposals and approve or reject 
such proposals. As part of this review, the Bureau will also assess 
whether any request for temporary waiver of the ownership rules in the 
incubated market should be granted to permit the incubation 
relationship.
    70. For any incubation relationship that does not trigger a FCC 
Form filing requirement, the proposal must be filed as a Petition for 
Declaratory Ruling in the Incubator docket, MB Docket No. 17-289, in 
the Commission's Electronic Comment Filing System (ECFS). Just as in 
the application context, if a temporary waiver of the ownership rules 
is needed for the incubation relationship, then the waiver request must 
accompany the Petition for Declaratory Ruling. The Bureau will act on 
such petitions and temporary waiver requests pursuant to its standard 
processes. As described above, any temporary waivers needed for the 
incubator program, irrespective of whether the proposal comes via an 
application or a Petition for Declaratory Ruling, will be granted (or 
denied) pursuant to Sec.  1.3 of the Commission's rules.
    71. The key factors guiding review of an incubation proposal will 
be whether: (1) The potential incubated entity has the wherewithal to 
obtain the necessary financing and support, absent the proposed 
incubation relationship; (2) the proposal provides for an incubation 
relationship addressing the needs that the incubated entity has (e.g., 
financial, technical, managerial, etc.) to be able to own and operate a 
full-service AM or FM station independently after the relationship has 
ended; and (3) the incubated entity retains de jure and de facto 
control over the station to be incubated. To assess whether the 
incubation proposal meets these factors, the Bureau will review two 
forms of documentation: (1) A written incubation contract between the 
parties; and (2) a certified statement that the incubated and 
incubating entities must each submit. These submissions will be the 
Bureau's best indications of whether the proposed incubation 
relationship is likely to promote the program's goals of increasing 
diverse station ownership by enabling a qualified incubated entity to 
own and operate a full-service AM or FM station independently. The 
Bureau, however, may also require the applicants to submit additional 
information if needed to determine whether the proposed incubation 
relationship is likely to promote the goals of our incubator program as 
discussed herein.
    72. Written Incubation Contract. The incubation proposal must 
contain a written contract between the parties memorializing all 
aspects of the incubation relationship, so as to demonstrate both 
compliance with program requirements (e.g., that the incubated entity 
has both de jure and de facto control) and the steps the parties will 
take to put the incubated entity in a position to own and operate a 
full-service AM or FM radio station independently.
    73. The contract must detail the level of equity interest each 
party will bring to the relationship. The incubated entity must show 
that it is providing a minimum equity stake as detailed above. The 
contract must also detail the parties' plan to unwind the incubation 
relationship and the steps they will take to enable the incubated 
entity to own and operate a full-service AM or FM station 
independently, be it the station that is the subject of incubation or 
another station to be acquired upon conclusion of the incubation 
relationship. The contract must provide the incubated entity with the 
option to buy out the incubating entity's non-controlling interest in 
the incubated station. As described above, the incubated entity can 
choose not to pursue this option and maintain the existing relationship 
along with its controlling interest. Alternatively, the incubated 
entity may choose to sell its interest in the incubated station and use 
the proceeds from the sale to acquire another full-service AM or FM 
station. In that case, we expect the incubating entity to help the 
incubated entity identify a full-service AM or FM station to buy and 
obtain the financing necessary to purchase the station. The contract 
must also provide for this alternative option. We require the contract 
to contain both options because we recognize that the incubated entity 
may not be well-positioned at the outset of the relationship to 
determine which approach best suits its long-term business interests in 
the broadcast sector. The incubated entity's anticipated growth 
trajectory may change as a result of the incubating entity's mentorship 
and introduction to capital sources that may have been previously 
unavailable. Indeed, we hope this will be the case. Consequently, while 
still ensuring that the incubated entity ultimately independently owns 
and operates a radio station, we do not mandate a pre-determined 
mechanism for how this goal will be achieved. As described below, 
however, the parties must notify the Bureau no later than six months 
before the end of the contract term which option they intend to pursue.
    74. Certified Statements. Along with a written agreement detailing 
the terms of the incubation relationship and the rights and obligations 
of each party, the incubating and incubated entities must each file a 
certified statement describing, among other things, each party's 
background, qualifications, and resources, and how these will enable 
the party, via the incubation relationship, to promote the goals of the 
incubator program--i.e., enabling a new entrant or small business to 
own and operate a full-service AM or FM station independently or to 
place a previously struggling station on a firmer footing. As part of 
the statement, the incubated entity must certify that its annual 
revenues for the previous three years did not exceed the SBA revenue 
standard and that during the preceding three years it held attributable 
interests in no more than three full-service AM and FM stations 
(listing the stations, community of license, and facility IDs of each), 
and that it did not hold an attributable interest in any TV stations, 
consistent with the eligibility standards adopted above. In addition, 
if the incubation proposal is being filed as a Petition for Declaratory 
Ruling, the potential incubated entity must make the same 
certifications and attribution disclosures that it would have had to 
submit were it filing the FCC Form 301, 314, or 315. We also require a 
potential incubated entity to include in its application a certified 
statement laying out why it is unable to acquire a controlling interest 
in the incubated station, or successfully operate the station, absent 
the proposed incubation

[[Page 43786]]

relationship and the funding, support, or training provided thereby.
    75. Likewise, the incubating entity must certify that it has the 
resources and experience necessary to help the incubated entity become 
an independent owner and operator of the incubated station or another 
full-service AM or FM station and that it will devote those resources 
and experience to achieve that goal. Dedicating executive and 
management personnel to provide training, strategic advice, and other 
support to the incubated entity may help demonstrate that an 
experienced broadcaster is committed and has the resources necessary to 
incubate a new entrant successfully. Longtime ownership of radio 
stations that are in the same service as the incubated station and in 
multiple markets is another indicator of the owner's potential for 
success as an incubator. Indeed, due to their resources and experience, 
station group owners may be in a particularly good position to help 
persons not only become radio licensees but also succeed in radio 
station ownership. In addition, the incubated and incubating entities 
must both certify that the incubated entity will maintain operational 
and management control of the station, including decisions regarding 
programming, personnel, and finances. These submissions will enable the 
Bureau to verify that the incubated entity is a bona fide entity, 
without links to the incubating entity absent the incubation 
relationship, and truly needs the resources of the incubator program.
    76. The goal of this program is to bring new voices to the local 
radio market and to stabilize those small broadcasters that might 
otherwise drop out of the market. While recognizing that the waiver the 
incubating entity will receive at the end of the incubation 
relationship is the best way to encourage participation in our program 
by established broadcasters, we do not grant these waivers lightly. The 
submissions described above provide an additional opportunity to ensure 
that both the incubating and incubated entities are legitimate 
participants in the program. If the Commission determines at a later 
date that either submission contained a misrepresentation this could 
lead to a withholding or revocation of a waiver, as well as referral to 
the Enforcement Bureau for further action.

Compliance During Term of Incubation Relationship

    77. Once the incubation contract has gone into effect, on the 
annual anniversary of the effective date of the contract, the 
incubating and incubated entities must jointly file a certified 
statement describing the incubation activities during the preceding 
year and how these comport with the commitments laid out in the 
incubation contract. The statement must describe the progress being 
made towards the ultimate goal of station ownership, or greater 
stability regarding current ownership, by the incubated entity. This 
annual certified statement must be filed both in the Incubator docket 
via ECFS and the parties' public inspection files, so as to enable 
public review. These statements will be the primary mechanism by which 
the Commission and the public can gauge compliance with the terms of 
the incubation contract and progress towards the goal of independent 
station ownership. If, upon review of an annual statement, the Bureau 
has questions or concerns, staff may follow up with the parties.
    78. No later than six months before the contract termination date, 
the parties must make a submission to the Commission stating which 
option for station ownership the incubated entity plans to pursue at 
the conclusion of the relationship--e.g., indicating that the incubated 
entity intends to buy out the incubating entity's non-controlling 
interest in the incubated station or that the parties will work 
together to identify and secure another full-service AM or FM station 
for the incubated entity to acquire. Accordingly, during the remainder 
of the contract period, both parties can devote some resources towards 
effectuating the station ownership goal. For example, both parties may 
need to commit some resources towards finding a new station or 
obtaining financing for the incubated entity or both.

Final Bureau Review and Grant of Reward Waiver to Incubator

    79. At the end of the three-year contract period, the parties must 
again file a joint certified statement reporting on the previous year's 
incubation activities. This submission will, however, also state 
whether the incubated entity has acquired a new station or will 
continue to retain its controlling interest in the incubated station, 
either with or without pursuing its option to buy out the incubating 
entity's non-controlling interest. If the goal of the incubation 
relationship was to stabilize a previously struggling station, this 
third annual filing must describe the current status of the incubated 
station and whether it is now on a firmer footing. In the event of a 
shorter incubation relationship due to exceptional progress on the part 
of the incubated entity in becoming an independent owner and operator 
of a full-service AM or FM station, the same filing requirement will 
apply, only the filing may be made before the third year. The Bureau 
will have 120 days after the filing of this statement to review the 
submission and ensure that the expectations for the incubation 
relationship and all program requirements were met. The Bureau may 
extend the review period if needed. If the incubation relationship 
required a temporary waiver of the ownership cap and the incubating 
entity plans to use its reward waiver to retain an otherwise 
impermissible attributable interest in the incubated station, including 
buying out the incubated entity's interest in the incubated station, 
then the incubating entity must file a waiver request along with the 
final joint statement. The temporary waiver will remain in effect 
during the Bureau's review period. In the event that the incubation 
relationship is deemed unsuccessful and the incubating entity cannot 
receive a reward waiver, the Bureau will extend the temporary waiver 
for a set time period as necessary to give the parties an opportunity 
to unwind the relationship.
    80. In the absence of any negative determination from the Bureau by 
the end of the 120-day review period, following submission of a final 
joint statement, the incubating entity will then have three years in 
which to submit a request to use the presumptive reward waiver. The 
request must be submitted with a copy of the Bureau document(s) that 
approved the qualifying incubation relationship, including any 
document(s) that approved an extension of the original term as 
discussed above. If the incubation relationship proposal was submitted 
and approved as part of a Form 301 construction permit application or a 
Form 314 or Form 315 assignment or transfer of control application, the 
waiver request must also include the file number of the approved 
application. As described above, there is a rebuttable presumption that 
granting a reward waiver is in the public interest if the incubating 
entity seeks the waiver for either the incubated market or a comparable 
market and the incubating entity is otherwise in compliance with the 
Commission's rules and requirements. If the incubating entity wishes to 
use its reward waiver to purchase the incubated station, it must file 
its application seeking an assignment of license or transfer of control 
application contemporaneously with its final annual

[[Page 43787]]

certified statement. It is necessary for the incubating entity to do 
this to ensure that the ownership limits in the incubated market are 
not violated when the temporary waiver for the incubation period 
expires.
    81. While incubation contracts are intended to last no longer than 
three years, parties may extend the incubation relationship for one 
additional period of up to three years subject to Bureau approval. For 
example, if the parties believe they need an additional six months 
beyond the initial three-year period to complete a new station purchase 
then they must seek an extension for six months. Parties that wish to 
extend their relationships must file this request no later than 120 
days before the end of the initial three-year contract period. The 
incubating entity, however, may only seek a reward waiver, either for 
the incubated market or another market, after the successful completion 
of the incubation relationship, whatever the extended time period is--
be it six months or three years. If, as part of the extension, there 
are any revisions to the initial incubation contract, the proposed 
revised contract must be filed along with the extension request. The 
Bureau will have 120 days to review the revised contract and request 
for extension. Absent Bureau action to the contrary within the 120-day 
period, the revised contract and request for extension time will be 
deemed effective, assuming they do not involve an assignment or 
transfer of control of a station. If there are no changes in the 
ownership/attribution/control structure of the agreement (e.g., 
incubator's control over the incubated station has not increased), it 
is unlikely to raise concerns for the Bureau. As a general matter, the 
requirements for the standard three-year contract period will apply 
during this extended period, but there may need to be some 
modifications depending on the circumstances. For example, an annual 
filing requirement will not make sense for a three-month extension. The 
Bureau will notify the parties of any such modifications.

III. Procedural Matters

    82. Paperwork Reduction Act Analysis. This Order contains 
information collection requirements subject to the Paperwork Reduction 
Act of 1995 (PRA), Public Law 104-13. The requirements will be 
submitted to the Office of Management and Budget (OMB) for review under 
Section 3507(d) of the PRA. OMB, the general public, and other Federal 
agencies will be invited to comment on the information collection 
requirements contained in this proceeding. The Commission will publish 
a separate document in the Federal Register at a later date seeking 
these comments. In addition, we note that, pursuant to the Small 
Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 
U.S.C. 3506(c)(4), the Commission previously sought specific comment on 
how it might further reduce the information collection burden for small 
business concerns with fewer than 25 employees. We have described 
impacts that might affect small businesses, which includes most 
businesses with fewer than 25 employees, in the Final Regulatory 
Flexibility Act Analysis.

Final Regulatory Flexibility Analysis

    83. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the Notice of Proposed Rulemaking (NPRM) in this 
proceeding. See 83 FR 774 (Jan. 8, 2018). The Commission sought written 
public comments on proposals in the NPRM, including comment on the 
IRFA. The Commission received no comments on the IRFA. The present 
Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.
    84. The Report and Order adopts requirements that will govern the 
incubator program that the Commission previously decided to adopt to 
support the entry of new and diverse voices into the broadcasting 
industry. The incubator program seeks to provide established 
broadcasters with an inducement in the form of an ownership rule waiver 
to invest the time, money, and resources needed to facilitate broadcast 
station ownership by new and diverse entrants. Through the incubator 
program, established broadcasters (i.e., incubating entities) will 
provide new entrants or small broadcasters (i.e., incubated entities) 
with the training, financing, and access to resources that would be 
otherwise unavailable to these entities. At the end of the incubation 
relationship, the incubated entity will either own a broadcast station 
or will retain ownership of a previously struggling station, now set on 
firmer footing. In return for its support, the incubating entity will 
receive a waiver of the Commission's Local Radio Ownership Rule that 
the incubating entity can use either in the incubated market or in a 
comparable market as discussed in the Report and Order, within three 
years of the successful conclusion of a qualifying incubation 
relationship.
    85. To qualify for participation in the incubator program, the 
parties must seek prior approval from the Commission that their 
proposed incubation relationship comports with the program 
requirements. The key factors guiding review of incubation proposals 
will be whether the potential incubated entity would have been able to 
obtain the necessary financing and support absent the proposed 
incubation relationship; whether the proposal provides the incubated 
entity with adequate financing, training, and support over the course 
of the incubation relationship to ensure its success; and whether the 
incubated entity retains de jure and de facto control over the station 
to be incubated. The standard term required for a qualifying incubation 
relationship will be three years, but the relationship may be extended 
up to an additional three years.
    86. Qualifying incubation relationships must provide the incubated 
entity with an option to purchase the incubating entity's equity 
interest in the incubated station, if it holds one, for a price that is 
no more than fair market value and/or terminate the incubating entity's 
creditor-debtor relationship with the incubated entity at the 
conclusion of the incubation relationship. At the end of the qualifying 
incubation relationship, the incubated entity may decide not to 
exercise this option and choose instead to retain its existing 
controlling interest in the incubated station. Alternatively, the 
incubated entity may choose to sell its interest in the incubated 
station and use the proceeds from the sale to acquire another full-
service AM or FM station. In that case, the Commission expects the 
incubating entity to help the incubated entity identify a full-service 
AM or FM station to buy and obtain the financing necessary to purchase 
the station. Absent a showing at the end of the qualifying incubation 
relationship that the incubated entity holds a controlling interest in 
the incubated station or a newly acquired full-service AM or FM 
station, the incubating entity will not be eligible to receive a waiver 
of the Local Radio Ownership Rule. If the goal of the incubation 
relationship was to stabilize a previously struggling station, then the 
joint certified filing must describe the status of the incubated 
station and whether it is now on a firmer footing. If an incumbent 
broadcaster successfully incubates a new, small entrant, or a small 
struggling station owner, as part of the incubator program, it will be 
eligible to receive a waiver of the Local Radio Ownership Rule 
following the conclusion of the qualifying incubation relationship. 
Such a waiver can be used for up to three

[[Page 43788]]

years after the successful completion of the qualifying incubation 
relationship and must be used in either the incubated market or a 
comparable radio market, as discussed in the Report and Order. To 
receive a reward waiver, the incubating entity must demonstrate that it 
has completed a successful qualifying incubation relationship. 
Specifically, the incubating entity must certify (i) that it complied 
in good faith with its incubation agreement, as submitted to and 
approved by the Bureau, and the requirements of our incubator program 
discussed herein; and (ii) either that the incubated entity holds a 
controlling interest in the incubated station or a newly acquired full-
service AM or FM station, or if the incubated station was a struggling 
station, that the incubation relationship has resolved the financial 
and/or operational difficulties that the owner of the previously 
struggling station faced prior to incubation and sought to remedy 
through the incubation relationship.
    87. In addition, to the extent the incubating entity needs a waiver 
of the Local Radio Ownership Rule to engage in a qualifying incubation 
relationship (for example, if the incubating entity is already at the 
applicable local radio ownership limit in the market and its investment 
in the incubated station would exceed that limit), we will grant the 
incubating entity a temporary waiver of the Local Radio Ownership Rule 
(including the AM/FM subcap) to allow the incubating entity to acquire 
an otherwise impermissible noncontrolling, attributable interest in the 
incubated station for the duration of the qualifying incubation 
relationship. With regard to the temporary waiver, the incubating 
entity and incubated entity must demonstrate that they are both 
eligible for, and intend to engage in, a qualifying incubation 
relationship, as discussed in the Report and Order.
    88. The Report and Order implements a long overdue mechanism to 
address the primary barriers to station ownership by new and diverse 
entities: lack of access to capital and the need for technical and 
operational experience. In implementing this incubator program, the 
Commission's expectation is that each successful incubation 
relationship will result in the acquisition of a broadcast radio 
station by a new entrant or small business, or the preservation of an 
existing, but struggling, small broadcaster. Accordingly, successful 
implementation of this incubator program will promote ownership 
diversity by fostering new entry in the broadcasting sector by 
entrepreneurs and small businesses, including those owned by women and 
minorities.
Summary of Significant Issues Raised by Public Comments in Response to 
the IRFA
    89. The Commission received no comments in response to the IRFA.

Response to Comments by the Chief Counsel for Advocacy of the Small 
Business Administration

    90. Pursuant to the Small Business Jobs Act of 2010, which amended 
the RFA, the Commission is required to respond to any comments filed by 
the Chief Counsel for Advocacy of the Small Business Administration 
(SBA), and to provide a detailed statement of any change made to the 
proposed rules as a result of those comments. The Chief Counsel did not 
file any comments in response to the proposed rules in this proceeding.

Description and Estimates of the Number of Small Entities to Which the 
Rules Will Apply

    91. The RFA directs agencies to provide a description of and, where 
feasible, an estimate of the number of small entities that may be 
affected by the proposed rules, if adopted. The RFA generally defines 
the term ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act. A small business concern is one which: (1) Is independently owned 
and operated; (2) is not dominant in its field of operation; and (3) 
satisfies any additional criteria established by the SBA.
    92. The rules proposed herein will directly affect small radio 
broadcast stations. Below, we provide a description of these small 
entities, as well as an estimate of the number of such small entities, 
where feasible.
    93. Radio Stations. This Economic Census category ``comprises 
establishments primarily engaged in broadcasting aural programs by 
radio to the public. Programming may originate in their own studio, 
from an affiliated network, or from external sources.'' The SBA has 
established a small business size standard for this category as firms 
having $38.5 million or less in annual receipts. Economic Census data 
for 2012 shows that 2,849 radio station firms operated during that 
year. Of that number, 2,806 firms operated with annual receipts of less 
than $25 million per year. Therefore, based on the SBA's size standard 
the majority of such entities are small entities.
    94. According to Commission staff review of the BIA/Kelsey, LLC's 
Media Access Pro Radio Database on June 22, 2018, about 11,365 (or 
about 99.9 percent) of 11,371 commercial radio stations had revenues of 
$38.5 million or less and thus qualify as small entities under the SBA 
definition. The Commission has estimated the number of licensed 
commercial AM radio stations to be 4,633 stations and the number of 
licensed commercial FM radio stations to be 6,738, for a total number 
of 11,371. We note the Commission has also estimated the number of 
licensed noncommercial (NCE) FM radio stations to be 4,128. 
Nevertheless, the Commission does not compile and otherwise does not 
have access to information on the revenue of NCE stations that would 
permit it to determine how many such stations would qualify as small 
entities.
    95. We also note, that in assessing whether a business entity 
qualifies as small under the above definition, business control 
affiliations must be included. The Commission's estimate therefore 
likely overstates the number of small entities that might be affected 
by its action, because the revenue figure on which it is based does not 
include or aggregate revenues from affiliated companies. In addition, 
to be determined a ``small business,'' an entity may not be dominant in 
its field of operation. We further note that it is difficult at times 
to assess these criteria in the context of media entities, and the 
estimate of small businesses to which these rules may apply does not 
exclude any radio station from the definition of a small business on 
these bases; thus, our estimate of small businesses may therefore be 
over-inclusive. Also, as noted above, an additional element of the 
definition of ``small business'' is that the entity must be 
independently owned and operated. The Commission notes that it is 
difficult at times to assess these criteria in the context of media 
entities, and the estimates of small businesses to which they apply may 
be over-inclusive to this extent.

Description of Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    96. In this section, we identify the reporting, recordkeeping, and 
other compliance requirements adopted in the Report and Order and 
consider whether small entities are affected disproportionately by any 
such requirements. The Commission decided to adopt an incubator program 
with the goal of creating ownership opportunities for new entrants and 
small businesses, thereby promoting competition and diversity in the 
broadcast industry. In keeping with that goal, the program

[[Page 43789]]

requirements that the Commission adopted in the Report and Order will 
enable the pairing of small aspiring, or struggling, broadcast station 
owners with established broadcasters. These incubation relationships 
will provide new entrants and struggling small broadcasters access to 
the financing, mentoring, and industry connections that are necessary 
for success in the industry but to date have been unavailable to many. 
Participation in the incubator program is optional, not mandatory. The 
Commission's expectation is that each successful incubation 
relationship will result in the acquisition of a broadcast radio 
station by a new entrant or small business, or the preservation of an 
existing, but struggling, small broadcaster. Therefore, the Commission 
anticipates that the incubator program will benefit small entities that 
participate in the program, not burden them.
    97. Reporting Requirements. The Commission expects that most 
incubation proposals will accompany an assignment, transfer of control, 
or construction permit application. The Commission directs its Media 
Bureau (Bureau) authority to modify the relevant FCC Forms, including 
instructions and worksheets, as needed to enable applicants to indicate 
on the form that the submission involves an incubation proposal. Such 
applications seeking to transfer, assign, or obtain an authorization 
are subject to public notice and petitions to deny and informal 
objections under the Commission's rules, and in addition to reviewing 
such applications pursuant to its routine review processes, the Bureau 
will review accompanying incubation proposals and approve or reject 
such proposals. For any incubation relationship that does not trigger 
an FCC form filing requirement, the proposal must be filed as a 
Petition for Declaratory Ruling in the Incubator docket, MB Docket No. 
17-289, in the Commission's Electronic Comment Filing System (ECFS). 
Just as in the application context, if a temporary waiver of the 
ownership cap is needed for the incubation relationship, then the 
waiver request must accompany the Petition for Declaratory Ruling.
    98. The incubation proposal must contain a written contract between 
the parties memorializing all aspects of the incubation relationship, 
so as to demonstrate both compliance with program requirements (e.g., 
that the incubated entity has both de jure and de facto control) and 
the steps the parties will take to put the incubated entity in a 
position to own and operate a full-service AM or FM radio station 
independently. The contract must detail the level of equity interest 
each party will bring to the relationship. The incubated entity must 
show that it is providing a minimum equity stake as detailed above. The 
contract must also detail the parties' plan to unwind the incubation 
relationship and the steps they will take to enable the incubated 
entity to own and operate a full-service AM or FM station 
independently, be it the station that is the subject of incubation or 
another station to be acquired upon conclusion of the incubation 
relationship. The contract must provide the incubated entity with the 
option to buy out the incubating entity's non-controlling interest in 
the incubated station. The incubated entity can choose not to pursue 
this option and instead maintain its existing controlling interest in 
the incubated station. Alternatively, the incubated entity may choose 
to sell its interest in the incubated station and use the proceeds from 
the sale to acquire another full-service AM or FM station. In that 
case, we expect the incubating entity to help the incubated entity 
identify a full-service AM or FM station to buy and obtain the 
financing necessary to purchase the station. The contract must also 
provide for this alternative option.
    99. Along with an agreement detailing the terms of the incubation 
relationship and the rights and obligations of each party, the 
incubating and incubated entities must each file a certified statement 
describing, among other things, each party's background, 
qualifications, and resources, and how these will enable the party, via 
the incubation relationship, to promote the goals of the incubator 
program--i.e., enabling a new entrant or small business to own and 
operate a full-service AM or FM station independently or to place a 
previously struggling station on a firmer footing. As part of the 
statement, the incubated entity must certify that its annual revenues 
for the previous three years did not exceed the SBA revenue standard 
and that during the preceding three years it held attributable 
interests in no more than three full-service AM and FM stations 
(listing the stations, community of license, and facility IDs of each), 
and that it did not hold an attributable interest in any TV stations, 
consistent with the eligibility standards adopted in the Report and 
Order. In addition, if the incubation proposal is being filed as a 
Petition for Declaratory Ruling, the potential incubated entity must 
make the same certifications and attribution disclosures that it would 
have had to submit were it filing the FCC Form 301, 314, or 315. The 
Report and Order also requires a potential incubated entity to include 
in its application a certified statement laying out why it is unable to 
acquire a controlling interest in the incubated station, or 
successfully operate the station, absent the proposed incubation 
relationship and the funding, support, or training provided thereby. 
Likewise, the incubating entity must certify that it has the resources 
and experience necessary to help the incubated entity become an 
independent owner and operator of the incubated station or another 
full-service AM or FM station and that it will devote those resources 
and experience to achieve that goal.
    100. In addition, the incubated and incubating entities must each 
certify that the incubated entity will maintain operational and 
management control of the station, including decisions regarding 
programming, personnel, and finances. These submissions will enable the 
Bureau to verify that the incubated entity is a bona fide entity, 
without links to the incubating entity absent the incubation 
relationship, and truly needs the resources of the incubator program.
    Once the incubation contract has gone into effect, on the annual 
anniversary of the effective date of the contract, the incubating and 
incubated entities must jointly file a certified statement describing 
the incubation activities during the preceding year and how these 
comport with the commitments laid out in the incubation contract. The 
statement must describe the progress being made towards the ultimate 
goal of station ownership, or greater stability regarding current 
ownership, by the incubated entity. This annual certified statement 
must be filed both in the Incubator docket via ECFS and the parties' 
public inspection files, so as to enable public review. These 
statements will be the primary mechanism by which the Commission and 
the public can gauge compliance with the terms of the incubation 
contract and progress towards the goal of independent station 
ownership. If, upon review of an annual statement, the Bureau has 
questions or concerns, staff may follow up with the parties. No later 
than six months before the contract termination date, the parties must 
make a submission to the Commission stating which option for station 
ownership the incubated entity plans to pursue at the conclusion of the 
relationship--e.g., indicating that the incubated entity intends to buy 
out the incubating entity's non-controlling interest in the incubated 
station or that the parties will work together to identify

[[Page 43790]]

and secure another full-service AM or FM station for the incubated 
entity to acquire.
    101. At the end of the three-year contract period, the parties must 
again file a joint certified statement reporting on the previous year's 
incubation activities. This submission will, however, also state 
whether the incubated entity has acquired a new station or will 
continue to retain its controlling interest in the incubated station, 
either with or without pursuing its option to buy out the incubating 
entity's non-controlling interest. If the goal of the incubation 
relationship was to stabilize a previously struggling station, this 
third annual filing must describe the current status of the incubated 
station and whether it is now on a firmer footing. In the event of a 
shorter incubation relationship due to exceptional progress on the part 
of the incubated entity in becoming an independent owner and operator 
of a full-service AM or FM station, the same filing requirement will 
apply, only the filing may be made before the third year. If the 
incubation relationship required a temporary waiver of the ownership 
cap and the incubating entity plans to use its reward waiver to retain 
an otherwise impermissible attributable interest in the incubated 
station, including buying out the incubated entity's interest in the 
incubated station, then the incubating entity must file a waiver 
request along with the final joint statement.
    102. While incubation contracts are intended to last no longer than 
three years, parties may extend the incubation relationship for one 
additional period of up to three years subject to Bureau approval. 
Parties that wish to extend their relationships must file this request 
no later than 120 days before the end of the initial three-year 
contract period. The incubating entity, however, may only seek a reward 
waiver, either for the incubated market or another market, after the 
successful completion of the qualifying incubation relationship, 
whatever the extended time period is--be it six months or three years. 
If, as part of the extension, there are any revisions to the initial 
incubation contract, the proposed revised contract must be filed along 
with the extension request.
    103. In the absence of any negative determination from the Bureau 
by the end of the 120-day review period, following submission of a 
final joint certified statement, the incubating entity will then have 
three years in which to submit a request to use the presumptive reward 
waiver. The request must be submitted with a copy of the Bureau 
document(s) that approved the qualifying incubation relationship, 
including any document(s) that approved an extension of the original 
term as discussed in the Report and Order. If the incubation 
relationship proposal was submitted and approved as part of a Form 301 
construction permit application or a Form 314 or Form 315 assignment or 
transfer of control application, the waiver request must also include 
the file number of the approved application. If the incubating entity 
wishes to use its reward waiver to purchase the incubated station, it 
must file its application seeking an assignment of license or transfer 
of control contemporaneously with its final annual certified statement. 
It is necessary for the incubating entity to do this to ensure that the 
ownership limits in the incubated market are not violated when the 
temporary waiver for the incubation period expires.
    104. Recordkeeping Requirements. Under the Commission's existing 
public file rules, licensees and permittees of commercial and 
noncommercial AM and FM stations are already required to retain in 
their public inspection file a copy of any application tendered for 
filing with the Commission and related materials as discussed in the 
rules. Thus, in addition to filing with the Bureau, parties to 
incubation contracts must retain a copy of all application materials, 
including the proposed incubation contract, in their public inspection 
files. Similarly, a copy of each annual certified statement discussed 
above must be filed both in the Incubator docket via ECFS and the 
parties' public inspection files. Consistent with the Commission's 
existing public file rules, items in the public file that are required 
to be filed with the Commission will be automatically imported into the 
entity's online public file, and entities will only be responsible for 
uploading to the online file items that are not also filed in the 
Consolidated Database System (CDBS) or Licensing and Management System 
(LMS) or otherwise maintained by the Commission on its own website.
    105. Other Compliance Requirements. In addition to the other 
compliance requirements discussed above, the Report and Order also 
adopts the following:
    To ensure that the incubated entity derives the maximum benefit 
from the training and mentoring provided by the incubated entity, the 
Report and Order requires that the incubated entity be the licensee of 
the incubated station and maintain ultimate authority over station 
personnel, programming, and finances. The Report and Order adopts 
certain safeguards to ensure that the incubated entity has the 
requisite level of autonomy during the incubation period.
    106. First, the Report and Order requires the incubated entity to 
satisfy the following control test consistent with the Commission's 
existing revenue-based eligible entity definition, upon which the 
Report and Order bases the second prong of the eligibility standard for 
the incubator program. Specifically, the Report and Order requires that 
the incubated entity hold more than 50 percent of the voting power of 
the licensee, and if the licensee is not a publicly traded company 
(which will almost assuredly be the case), a minimum of either 15 
percent or 30 percent of the equity interests, depending on whether 
someone else owns or controls more than 25 percent of the equity 
interests. The Report and Order concludes that applying the control 
test from the Commission's existing eligible entity rule will best 
ensure that the incubated entity retains control of the incubated 
station while still giving the parties some flexibility to establish 
incubation relationships that suit their specific needs. Moreover, 
using the existing standard should facilitate both participation in and 
administration of the program, as the standard is already familiar to 
licensees.
    107. To ensure that the incubated entity retains autonomy over the 
incubated station's core operating functions so as to gain the 
necessary level of operational expertise, and in light of concerns 
raised by some commenters, the Report and Order places certain 
restrictions on the use of local marketing agreements (LMAs), joint 
sales agreements (JSAs), and shared service agreements (SSAs). The 
Commission's current attribution standards recognize that same-market 
radio LMAs and JSAs above a certain percentage of the station's 
broadcast day may confer on the brokering station the potential to 
exert a significant degree of influence over core station operating 
functions (i.e., programming decisions). Specifically, the Commission's 
attribution standards regard as attributable ownership interests same-
market radio LMAs and JSAs in which the brokering station brokers more 
than 15 percent of the broadcast time or sells more than 15 percent of 
the advertising time per week. Given the Commission's rationale for 
attributing these arrangements and the concerns raised in the record of 
this proceeding, the Report and Order adopts the following safeguards.
    108. First, to ensure that the incubated entity retains control of 
the programming aired on the incubated

[[Page 43791]]

station, the Report and Order prohibits LMAs involving the incubated 
station. As defined in the Commission's rules, an LMA is any agreement 
that involves ``the sale by a licensee of discrete blocks of time to a 
`broker' that supplies the programming to fill that time and sells the 
commercial spot announcements in it,'' regardless of how the agreement 
is titled. Second, to ensure that the incubated entity is able to gain 
operational expertise by performing the core operations of the 
incubated station, the Report and Order limits any JSAs or SSAs 
involving the incubated station to the first two years of the initial 
incubation period. Pursuant to the definitions in the Commission's 
rules, a JSA is any agreement with the licensee of a brokered station 
that authorizes a broker to sell advertising time for the brokered 
station, and an SSA is any agreement or series of agreements in which 
(i) a station provides any station-related services to a station that 
is not directly or indirectly under common de jure control permitted 
under the Commission's regulations, or (ii) stations that are not 
directly or indirectly under common de jure control permitted under the 
Commission's regulations collaborate to provide or enable the provision 
of station-related services. While the Commission's attribution 
standards do not regard SSAs as attributable ownership interests, the 
Commission is concerned that allowing these arrangements to be used for 
the full duration of an incubation relationship could deprive the 
incubated entity of its incentive to gain the operational expertise 
needed to operate the station independently at the end of the 
relationship. Permitting limited use of JSAs and SSAs appropriately 
balances broadcasters' representations that these arrangements can make 
incubation more successful with the need to ensure that each incubated 
entity learns how to perform essential station functions independently 
in order to be viable in the long term as an independent broadcaster. 
The Commission does not believe that prohibiting LMAs and restricting 
the use of JSAs and SSAs will reduce the utility of the incubator 
program for incubated entities, as the record and the Commission's 
experience indicate that new owners of radio stations need assistance 
primarily with financing and technical issues, rather than programming 
and advertising sales.
    109. Moreover, these safeguards will enable the parties to evaluate 
whether the incubated entity is prepared to operate independently 
before the incubation period is complete and while the incubating 
entity remains contractually obligated to provide support. By requiring 
that the incubated entity actually obtain or produce programming, sell 
advertising, and perform other core operating functions for the 
incubated station for at least one full year prior to the expiration of 
the incubation relationship, these protections will provide for a more 
informed assessment of the incubated entity's progress and any areas 
where it needs additional training and support to be viable as an 
independent owner and operator of the incubated station or another 
full-service AM or FM station. The incubated entity's experience 
performing core operating functions may provide a persuasive 
justification for extending the incubation relationship if the parties 
determine that more time is needed to incubate the station. While the 
Report and Order allows limited use of JSAs and SSAs, the Report and 
Order also emphasizes that these agreements, if used, must be 
accompanied by proper training in the relevant area(s)--e.g., 
administrative, technical, sales, etc.--covered by any such 
arrangement(s) involving the incubated station.
    110. Finally, the Report and Order requires that none of the 
officers, directors, managing partners, or managing members of the 
incubated entity hold an attributable interest in or be an employee of 
the incubating entity. The Commission is concerned that allowing an 
employee or an attributable interest holder in the incubating entity to 
serve as an officer, director, managing partner, or managing member of 
the incubated entity may jeopardize the independence of the incubated 
station given the significant conflicts of interests that could arise 
for these individuals and the significant authority and potential for 
influence they would wield over the incubated station. While U.S. 
antitrust laws prohibit, with certain exceptions, one individual from 
serving as an officer or director of two competing corporations, the 
Commission believes that an additional safeguard is needed to address 
circumstances that may be exempt from or not covered by the antitrust 
laws, such as where the two companies are not competitors, where either 
company is not a corporation or does not meet certain financial 
thresholds, or where an officer or director of one company is an 
employee but not an officer or director of the other company.

Steps Taken To Minimize Significant Economic Impact on Small Entities, 
and Significant Alternatives Considered

    111. The RFA requires an agency to describe any significant, 
specifically small business, alternatives that it has considered in 
reaching its proposed approach, which may include the following four 
alternatives (among others): (1) The establishment of differing 
compliance or reporting requirements or timetables that take into 
account the resources available to small entities; (2) the 
clarification, consolidation, or simplification of compliance and 
reporting requirements under the rule for such small entities; (3) the 
use of performance, rather than design, standards; and (4) an exemption 
from coverage of the rule, or any part thereof, for small entities.
    112. As discussed above, the Commission decided to adopt an 
incubator program with the goal of creating ownership opportunities for 
new entrants and small businesses, thereby promoting competition and 
diversity in the broadcast industry. In adopting the requirements that 
will govern the incubator program, the Commission considered various 
options and alternatives that were proposed in the NPRM and public 
comments, and based on the record, the Commission concluded that 
structuring the incubator program as discussed in the Report and Order 
will provide small new entrants and struggling small broadcasters 
access to the financing, mentoring, and industry connections that are 
necessary for success in the broadcasting industry. The Commission's 
expectation is that each successful incubation relationship will result 
in the acquisition of a broadcast radio station by a new entrant or 
small business, or the preservation of an existing, but struggling, 
small broadcaster. Participation in the incubator program is optional, 
not mandatory, and the Commission anticipates that the incubator 
program will benefit small entities that participate in the program, 
not burden them.

Report to Congress

    113. Congressional Review Act. The Commission will send a copy of 
the Order, including this FRFA, in a report to be sent to Congress and 
the Government Accountability Office, pursuant to the Congressional 
Review Act, see 5 U.S.C. 801 (a)(1)(A).

IV. Ordering Clauses

    114. Accordingly, it is ordered that, pursuant to the authority 
contained in Sections 1, 2(a), 4(i), 257, 303, 307-310,

[[Page 43792]]

and 403 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 
152(a), 154(i), 257, 303, 307-310, and 403, this Report and Order is 
adopted.
    115. It is further ordered that this Report and Order shall be 
effective thirty (30) days after publication of the text or a summary 
thereof in the Federal Register, except for those requirements 
involving Paperwork Reduction Act burdens, which shall become effective 
on the date announced in the Federal Register document announcing OMB 
approval.
    116. It is further ordered that the Media Bureau is hereby directed 
to make all necessary changes to Form 301, Form 314, Form 315, and the 
Commission's electronic database system to implement the changes 
adopted in this Report and Order.
    117. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Report and Order, including the Final Regulatory 
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small 
Business Administration.
    118. It is further ordered that, pursuant to section 801(a)(1)(A) 
of the Congressional Review Act, 5 U.S.C. 801(a)(1)(A), the Commission 
shall send a copy of the Report and Order to Congress and to the 
Government Accountability Office.

Federal Communications Commission.
Marlene Dortch,
Secretary.
[FR Doc. 2018-18289 Filed 8-27-18; 8:45 am]
 BILLING CODE 6712-01-P


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