September 28, 2018

Due Diligence: We Weren’t Kidding About Those FCC Licenses

A couple of years ago, we blogged about the need for a buyer to keep the seller’s FCC licenses in mind during due diligence – even if the seller isn’t a telecom company. This Arnold & Porter memo suggests that now may be a good time for a reminder. Here’s an excerpt:

Does your M&A due diligence checklist ask about FCC licenses? No? Well, the FCC just gave you a half million reasons to add a question—504,000, to be exact. That’s how much (in US dollars) Marriott International, Inc. agreed to pay to settle an FCC investigation into the unauthorized transfer of licenses arising out of its 2016 acquisition of Starwood Hotels & Resorts Worldwide, Inc.

You may be asking yourself what a hotel chain merger has to do with the Federal Communications Commission. The answer entails a brief introduction to FCC licensing as a prelude. The Communications Act generally prohibits anyone from “us[ing] or operat[ing] any apparatus for the transmission of energy or communications or signals by radio” within or from the United States without a license.

Broadcasters have FCC licenses for their over-the-air AM, FM, and TV signals. Mobile wireless carriers have FCC licenses for their subscribers’ calls, texts, and data usage. And businesses across the United States have FCC licenses for the radio equipment they use for security,  groundskeeping, maintenance, transportation, and other internal communications needs. Several dozen of the Starwood-owned or -managed hotels that Marriott acquired are among these businesses.

The Communications Act and the regulations implementing that statute generally require prior FCC approval before control of a license passes to another party, whether by assignment of the license or transfer of control of the licensee. The FCC may consent only if it finds the transaction will serve the “public interest, convenience, and necessity.”

The memo says that this requirement is not as burdensome as it sounds – when the license is merely a peripheral part of the business, it rarely takes more than few weeks for the FCC to consent, and it often acts overnight. But you’ve got to remember to reach out in order to get the agency’s consent, and if you don’t, it may cost you.

John Jenkins