The Communications Act imposes complex limits on alien ownership. The FCC’s historical interpretation of those limits has made them even more complex. The Commission has now revisited that interpretation – with mixed results.
We reported last year that the FCC initiated a rulemaking proceeding to consider how it might facilitate foreign ownership of licensed common carriers. And we reported last spring that, in the initial rounds of that proceeding, the FCC received some industry feedback that its foreign ownership rules were limiting or hindering foreign investment unduly. As FCC veterans know, the Communications Act imposes certain restrictions on the ownership of broadcast and common carrier licenses by aliens. Specifically, Section 310(b)(3) of the Act forbids aliens from directly owning more than 20% in such licenses. Section 310(b)(4) precludes aliens from controlling a company that directly or indirectly owns more than 25% of such a license unless the FCC approves the ownership.
Three score and 18 years after the Act came into being, the FCC has now taken a fresh look at those provisions. It had previously decided that Section (b)(3) actually applies to indirect ownership interests even though, unlike Section (b)(4), Section (b)(3) doesn’t say that. The FCC has interpreted Section (b)(3) to apply when the alien entity does not control the licensee, while (b)(4) applies only when the alien does control. Non-controlling alien ownership interests between 20% and 50% were out of luck since an alien with an indirect 30% ownership interest would exceed the permissible level for non-controlling entities banned by (b)(3) but would not have the control necessary to permit the ownership to be approved.
This interpretation presented a strange anomaly: an alien could indirectly own a controlling interest in a company so long as the FCC approved it, but an alien couldn’t own a non-controlling interest between 20 and 50% under any circumstances. And indirect non-controlling interests between 20% and 25% fell even deeper into the Twilight Zone – they seem to be fully permissible under (b)(4) without any FCC approval at all, but completely and irremediably banned under (b)(3). Commissioner Pai recognized this problem in his statement accompanying the Order – the Commission’s interpretation of the statute leads to “absurd” results.
The Commission could have easily dealt with this situation by simply declaring that (i) Section (b)(3) is limited to direct ownership interests, as it appears to be by its terms, and (ii) Section (b)(4) applies only when the indirect alien ownership is a controlling one, again, as the actual language of the statute indicates. This would have: (a) left (b)(3) to bar direct alien ownership interests above 20% entirely, as Congress seems to have intended; (b) permitted indirect but non-controlling alien interests of any level without the need for FCC approval at all; and (c) would have allowed the FCC to approve indirect controlling alien ownership interests where more than 25% of the stock is owned by aliens upon a proper showing. That would have been a simple and straightforward construction of the statute, reducing the need for FCC alien ownership rulings – and alien angst – significantly; it would also have applied both to broadcast and common carrier licensees.
The Commission did not, however, take that approach.
Instead, apparently unwilling to abandon its historical interpretation, the FCC had to devise a complicated fix. Its solution was to “forbear” from enforcement of the statute as it had interpreted it. The Act permits the FCC to forbear upon certain findings from enforcing statutory mandates with respect to common carriers but not with respect to broadcasters.
The FCC made the necessary findings and concluded that it would forbear from enforcing the ban on indirect non-controlling alien ownership between 20% and 50% upon a showing by the alien similar to the public interest showing required under current procedures when an alien seeks approval under Section (b)(4). This approach does have the salutary effect of treating all indirect non-controlling ownership interests above 20% in a consistent way. It also eliminates the confusing doughnut hole between 20% and 25% that had existed before. The only problem is that aliens now have to seek prior FCC approval before acquiring non-controlling indirect interests that the Act on its face seemed not to care about at all.
Wasting no time, the Commission published its report and order in the Federal Register less than a week after that report and order was adopted – meaning that the new approach became effective as of August 22, 2012.
The FCC declared that its newly-adopted approach “will clarify and simplify Commission regulation of foreign ownership of common carrier licensees, thereby facilitating investment from new sources of equity financing and enhancing opportunities for technological innovation, economic growth, and job creation.” What do you think?