FCC Reimbursement Background

As wireless technology advances and spectrum becomes more scarce, the FCC and other regulators around the world will increasingly face the task of repurposing spectrum for new uses. This requires moving incumbent users, often at significant costs.  The FCC has two basic models for reimbursing licensees for incurred costs - the direct reimbursement model and the clearinghouse model.  Both models present challenges for parties seeking to be reimbursed. Each reimbursement process will have its own rules involving significant administrative challenges; the following sections explain some of the general features of each model.

Direct FCC Reimbursement Model

The FCC typically uses the direct expense reimbursement process for programs where Congress has given the FCC authority to pay third parties. Examples include the television broadcast repack following the Broadcast Incentive Auction or the upcoming "Rip and Replace" program. In these cases, the FCC effectively pays the party owed reimbursement funds directly, although it may engage an accounting firm to support its efforts. The FCC often uses a "cost catalog" to provide guidelines for the expected costs of standard equipment and services. Due to government regulations, the reimbursement process is somewhat cumbersome for those seeking reimbursement. Specific formats are required, and typically, invoices and estimates, and totals on hourly billings need to match to the penny—any deviation results in rejection or a request for information (RFI). An invoice covering multiple sites, for example, must be divided and uploaded for each site individually.

Clearinghouse Reimbursement Model

The FCC typically uses the Clearinghouse model when the funds are being paid by a third party, for example when FCC license auction winners are required to repay the costs of incumbents moving from the spectrum. The AWS clearing and the C-band clearing are instances where the FCC used the clearinghouse model. In the clearinghouse model, the party seeking reimbursement submits their expenses to the clearinghouse. If the auction winners who are obligated to reimburse the costs believe the clearing costs are excessive, they usually have an option to protest.

Case Studies

Cast Study #1: Rip & Replace (Direct Reimbursement Model)

Summit Ridge Group is advising several regional telecom operators, and their suppliers, on topics related to complying with FCC regulations requiring them to replace certain Chinese-made equipment as well as the process required to receive reimbursement for the associated replacement costs. Summit Ridge clients have been approved for over $1.3 billion dollars in reimbursement costs.

Case Study #2: Broadcast Incentive Auction Experience (Direct Reimbursement Model)

Summit Ridge Group has deep expertise in the incentive auction process, having advised investors and broadcasters as well as having written law review articles about the auction. We've leveraged our auction expertise into the broadcast reimbursement process and currently support over 130 full-power and Class A stations, 70 low-power stations, and 15 FM stations through the reimbursement process filed through the FCC's Licensing and Management System. Our dedicated team provides a wide range of accounting-related services to broadcasters seeking assistance in the process. As some of our clients have been at the forefront of the reimbursement process, we are highly aware of the FCC process's nuances and changes as they occur. As part of our repack accounting service, we:

• Work with broadcasters to verify that all vendor proposals, purchase orders, and invoices conform to the detailed FCC requirements before submission. If they are deficient, we work with the client or vendor to provide the necessary information in the appropriate format.
• Prepare Form 399 by uploading the compliant invoices to the FCC through LMS (the client or their law firm provides the final certification). We maintain a detailed tracking system to monitor the progress of invoices through the FCC process. Clients can also use our tracking system for planning the working capital impact of the process.
• Work with clients to develop a narrative explanation to anticipate questions from the FCC for invoices where there may be questions regarding the nature of the invoice or questions about the amounts.
• Revise "cost estimates" on Form 399 as many times as necessary during the reimbursement period to accurately reflect our client's plan and incurred expenses.
• Prepare materials to account for situations where a client intends to "upgrade" a station's facilities so that they can collect partial reimbursement related to the estimated ungraded repacking costs, including facility maximization costs.
• Work with the FCC to clarify or resolve submissions the FCC disputes to our client's best advantage. Our established working relationships with the FCC and its consultants allow us to quickly understand FCC requirements and resolve unusual situations in a timely manner.
• Track FCC reimbursements through the FCC's CORES system and clients' bank accounts to match against invoice submissions and follow up with FCC as appropriate.
• Update the FCC documentation on file to reflect changes in the build process as needed.
• Hold weekly conference calls with our clients to keep them updated with their stations' reimbursement status, updates from the FCC and industry trends related to the repack process as we become aware of them.

Due to our experience working with many stations, we believe we are particularly well-positioned to handle complex repacking situations, including those that arise from changes in business plans, equipment upgrades, and changes of ownership.

 

Case Study #3: AWS Clearinghouse Valuation Report Experience (Clearinghouse Reimbursement Model)

During the AWS clearing, incumbent operators of point-to-point services were required to relocate. The clearinghouse process, in this case, required the incumbent to include an independent appraisal analysis that opined on the reasonableness of the costs. The FCC presumably intended the appraisal to reduce instances of overbilling. Before the AWS auction license winner could use the spectrum, they were required to reimburse the incumbent's costs, including the appraisal cost. Despite the appraisal, the auction winners also had the right to protest if they believe the claimed relocation costs were excessively high. Summit Ridge Group performed dozens of independent appraisals for a large energy company. The critical element, in our view, was to ensure a clear explanation of unusual situations so that the reader could understand the necessary costs. The auction winners did not challenge any of the costs covered by our appraisals.

Summit Ridge Group is a leading provider of accounting and related consulting services for entities seeking FCC reimbursement eligible expenses. Do not hesitate to reach out with any questions.