Commission contemplates forbearance approach to direct alien ownership limits.

Last fall we reported on an FCC Notice of Proposed Rulemaking in which the FCC is considering how to simplify the application of the foreign ownership restrictions that appear in the Communications Act.   After digesting the comments submitted in that proceeding, the FCC has asked for more input. It seems that a number of commenters were concerned about the interplay of Section 310(b)(3) of the Act with Section 310(b)(4).

Section 310(b)(3) strictly forbids ownership of a broadcast or common carrier licensee by a corporation which is more than 20% owned by aliens or their representatives or by foreign governments or foreign corporations.   In other words, no more 20% of the licensee entity itself may be owned by aliens or their representatives. Section 310(b)(4), however, permits licensee entities to be owned by companies that are themselves owned by aliens or their representatives, so long as the FCC OKs the ownership. In other words, indirect ownership of licensee entities by any quantum of aliens is permissible as long as the FCC approves it.   These provisions have long been thought to define two separate classes of ownership, direct and indirect, with distinct restrictions applicable to each.

Apparently Verizon – a company whose Cellco Partnership subsidiary has significant foreign ownership – pointed out that the FCC’s 2004 effort to provide guidance on these matters actually confused things. Those 2004 guidelines seemed to treat indirect interests in licensees as being subject to the strict 20% prohibition of 310(b)(3) rather than the more liberal 25% provision applicable to indirect interests under Section 310(b)(4). Verizon correctly noted that this makes no sense, and the FCC seems to have heard Verizon’s plea.

The FCC seeks comment on this specific issue. It also proposes a possible solution. Under the Communications Act, the FCC is allowed to forbear from applying any provision of the Act to a telecom carrier if the Commission finds such forbearance to be in the public interest, unnecessary to protect consumers, and unnecessary to ensure just, reasonable and non-discriminatory rates.   Accordingly, the FCC asks whether it should use that tool to get around the strict prohibition of Section 310(b)(3) if it applies to indirect interests. A company would simply have to make a showing similar to the one now needed to obtain Section 301(b)(4) approval and the Commission would then routinely forbear from applying the prohibition.

This seems to us to be a cumbersome and unnecessary procedure that could be handled much more directly. If the FCC simply interpreted 310(b)(3) straightforwardly to apply only to direct ownership interests in licensee – as Congress seems to have intended – the Commission would limit the application of that section to a very limited number of situations while handling the indirect ownership scenario through the now tried and tested Section 310(b)(4) approval process.

The forbearance process floated by the FCC in its recent notice can apply only to telecom licensees because the forbearance process is limited to that class of regulated entities. By contrast, the course we are suggesting would have the added benefit of applying to broadcast licensees since it would apply across the board to all licensees.  However, since to date the FCC has virtually never approved indirect foreign ownership of more than 25% of a broadcast entity, broadcasters under our approach would get only the marginal relief of being able to have up to 25% foreign ownership without running afoul of the statute.

There’s a short window to comment on this one – 21 days from publication in the Federal Register, plus ten more days for replies. We’ll let you know when that happens.