UPDATE 2-U.S. regulators restrict TV stations' joint ad sales

Mon Mar 31, 2014 4:49pm EDT

(Adds quotes, further details on votes, spectrum items)

By Alina Selyukh

WASHINGTON, March 31 (Reuters) - U.S. communications regulators voted along party lines on Monday to prohibit broadcast companies from controlling two or more TV stations in a market by sharing advertising sales staff as the agency began its new review of media ownership rules.

Two Democratic members of the Federal Communications Commission sided with Chairman Tom Wheeler on new rules that would count a broadcaster as having an ownership interest in any station where that owner sells 15 percent or more of weekly advertising time.

Current FCC rules typically prohibit one broadcaster from owning two TV stations in one local market.

Wheeler said broadcasters increasingly use so-called joint services agreements, or JSAs, as a loophole to "skirt the existing rules to create market power," giving one station de facto control over another's programming and finances.

Broadcaster with JSAs now have two years to divest or apply for waivers, for instance arguing that their agreement has no influence on programming or actually promotes localism and competitiveness of local TV. The FCC pledged to review any waivers within 90 days.

The rules passed against fierce opposition from Republican FCC members, who voiced many of the arguments aired in recent weeks by the broadcasting industry, in particular that the arrangements are vital to financially strapped local TV stations as they save cash on ad sales and use it to improve programming.

Public interest groups, however, have pushed for the FCC to do away with sidecar agreements, which they see as helping corporations consolidate ownership of local media. The Justice Department in a filing in February supported that view.

The new rules could prompt divestitures from large TV station owners such as Sinclair Broadcast Group Inc and Nexstar Broadcasting Group Inc, whose shares took a hit in recent days as FCC considered the new rules.

On Monday, Republican commissioners Ajit Pai and Mike O'Rielly, echoing the comments from the National Association of Broadcasters, chided Wheeler for moving ahead on new rules before completing the FCC's review of regulations on media ownership required by Congress every four years.

The FCC on Monday launched the 2014 review, though has not proposed relaxing current rules, including a ban on one owner controlling a major newspaper and TV station in one market.

The commission also unanimously voted to prohibit two or more of top four broadcasters that compete against each other in the same market from banding together and jointly negotiating retransmission agreements with cable and satellite companies, expecting it to help lower fees for consumers.

Additionally, the FCC on Monday unanimously voted to free a slice of airwaves for outdoor high-speed Wi-Fi Internet, clearing a band of high frequencies, known as the 5 gigahertz band, for unlicensed, or shared, use. Previously, the band of frequencies was largely used by federal government entities.

In the past, new unlicensed spectrum led to innovations such as cordless telephones and remote garage-door openers.

The FCC also set up another slice of the electromagnetic spectrum, known as AWS-3, for sale to wireless broadband providers in an auction scheduled for later this year.

(Reporting by Alina Selyukh; Editing by Doina Chiacu, Marguerita Choy and Lisa Shumaker)