Two weeks after issuing its long-awaited Quadrennial Review order without easing many of the media ownership restrictions as requested by the broadcast industry, the FCC effectively tightened these restrictions further on Wednesday with the release of a Report and Order (R&O) that eliminates the “UHF discount” used by television broadcasters in assessing their compliance with the FCC’s 39% cap on national audience reach. Enacted in 1985, the UHF discount allowed licensees of commercial television stations in the UHF bands (Channels 14 through 51) to count 50% of their potential viewers in every market when calculating their compliance with the national audience cap. As stated in Wednesday’s R&O, the UHF discount was promulgated at a time when UHF signals were deemed to be “technically inferior” and the market coverage of UHF stations was limited, thus placing such stations at a competitive disadvantage against their VHF counterparts.

In a 3-2 ruling adopted along party lines the FCC cited the effects of the 2009 digital television (DTV) transition on UHF signal quality, observing: “experience since the DTV transition demonstrates that UHF channels are equal, if not superior, to VHF channels for the digital transmission of television signals.” Stressing that, in the current digital marketplace, the UHF discount “acts only to undermine the national audience reach cap,” the FCC concluded that the UHF discount “can no longer be supported on technical grounds.” Although future transfers and assignments of television station licenses are likely to be impacted by the FCC’s decision, the new rules include a “grandfather” clause that allows most existing licensees to retain stations that would otherwise put them over the cap absent the discount. Stating its intention to “avoid imposing undue harm on existing broadcast television station groups,” the FCC characterized its approach as “fair to affected licensees and consistent with Commission precedent.”

Broadcast executives reacted with dismay, lamenting that the FCC had ignored industry recommendations that the UHF discount should not be modified or eliminated unless a corresponding uptick in the national audience cap is enacted. In dissenting statements, FCC Commissioner Michael O’Rielly questioned the FCC’s assertion that the agency “has authority to modify the National Television Ownership Rule in any way, including eliminating the UHF discount.” His Republican colleague, Commissioner Ajit Pai, warned that the ruling “will substantially change the impact of the national cap.” Charging that the FCC eliminated the UHF discount “without holistically addressing the need for reform of all broadcast media rules,” Dennis Wharton, the executive vice president of communications at the National Association of Broadcasters  (NAB), declared it “time for the FCC to look at broadcast ownership rules in a manner that reflects the current marketplace.”