What do retailers, universities, land developers, oil companies, sports teams, utilities and railroads have in common?

All of them, like companies in many other industries, use licenses regulated by the Federal Communications Commission (FCC), none of them is in the communications business, and few give much thought to the FCC regulations before they do a deal. That makes their corporate transactions traps for the unwary M&A practitioner.

Most private-use radio spectrum in the United States is held by license from the FCC. The FCC must approve the assignment or change of control of a license from one user to another. The approval must be in hand before a licensee surrenders control over the license. Approvals normally are cheap and fast, but it can take weeks or months to complete the process. Once approval is granted, it is valid for two to six months, depending on license type, so good practice is to apply early and hold the approval for closing. The FCC will cooperate where confidentiality is important to the transaction or where an extension of time is needed.

Note that some radio use is unlicensed and requires no FCC approval. Mobile telephones are not an issue because carriers hold licenses for that service. Wi-Fi transmitters, many short-range walkie-talkies, and some Internet Service Providers use unlicensed frequencies that have no transfer approval process.

International deal features can delay approvals. If a license will wind up being controlled by a non-citizen or a foreign-controlled corporation, be prepared for more detailed (longer) review by the FCC and other agencies. If the license is for operating in an area near an international border, you could have complications with foreign regulators.

An application for approval will hit a snag if a license has expired or if there was some earlier unauthorized transfer of the license. Even “pro-forma” transfers in intra-company reorganizations require FCC approval or notification that, if not timely secured, can delay a later transfer. Any unauthorized transfer will require clean-up filings and payment of fines before a transfer is approved.

If you find yourself headed to closing with too little time to complete the approval process, it may be possible to plead for emergency consideration by the FCC staff. It may be possible to obtain special temporary authority for the transferee to operate the transferred frequencies. Temporarily removing the licenses from the deal might save the day as well, but these last minute arrangements are not ideal or easy. They impose unwelcome burdens on the FCC staff, require considerable coordination by the parties and sometimes get to tail-wags-dog scenarios.

If a deal closes without FCC approval, the parties must make catch-up filings, and FCC fines and legal fees will add up quickly. There are no guarantees that the transfer will be approved at all or that other FCC licenses of the parties won’t be affected.

To avoid the FCC license trap:

  1. Add FCC license review to your acquisition and reorganization checklists. 
  2. Keep FCC license records up to date. 
  3. Ask about FCC licenses early in any transaction. 
  4. Apply for FCC approval for transfers well before closing. 
  5. Be alert to reorganizations that involve entities holding FCC licenses.