FCC relaxes alien ownership restrictions for some, but NOT all, services.

While Congress continues to debate fundamental issues of immigration policy, the FCC has taken steps to make it considerably easier for aliens to own controlling and non-controlling interests in common carrier and aeronautical stations. The odd result is that aliens can now own such licenses but may find it difficult to immigrate here to operate them.

As we reported when the FCC initially proposed changing its alien ownership rules, the impetus for the FCC’s Second Report and Order (Second R&O) was two-fold. First, the Commission recognized that its cumbersome alien-ownership approval process was impeding foreign investment in the United States at a time when capital investment is being strongly encouraged. Second, the process of trying to identify exactly who a company’s foreign owners are and where they are from can be difficult, if not impossible. The Commission and its regulatees found that they were spending inordinate amounts of time and money trying to ascertain where alien owners were from for purposes of the rules without any concomitant public benefit for the effort involved.

While the new rules retain the basic structure of requiring prior FCC approval for aliens either to: (a) indirectly control a US common carrier licensee, or (b) own more than 20% of a licensee company, they greatly simplify the procedures and detailed ownership accounting that created so much wasted effort. We hasten to emphasize that the rules continue their very strong prohibition on alien ownership or control of broadcast licensees above the benchmark levels, even though those licenses are statutorily eligible for the same treatment as common carrier and aeronautical licenses. This disparate treatment is coming under increasing attack, most directly by Commissioner Pai. For the time being the disparity remains firmly in place, although the Commission has invited comment on a request for “clarification” of limitations on alien ownership of broadcast licensees.

Here are some of the highlights of the new rules:

  • The FCC is eliminating the distinction between aliens from World Trade Organization (WTO) countries and those who are not. It seems to have consumed considerable resources of the FCC and parties involved to try to determine which aliens in a company’s structure were from WTO countries and which were not. The FCC has dropped that distinction but has retained its requirement that all foreign investment be subject to an “open entry standard.” The Commission did not really discuss what this meant, but in the past the FCC has used this to refer whether the alien’s home country provided open entry to U.S. investment – absent such reciprocal investment opportunities, the U.S. would look unfavorably on the alien being allowed to invest here. The WTO membership standard was a shorthand means of reaching that conclusion because all WTO members were presumed to allow such reciprocal opportunities.   It is unclear how dropping the WTO criterion but retaining the underlying “open entry” requirement simplifies things, since the Commission would still need to determine whether, in the cases of non-WTO member aliens, their countries allow open entry.
  • The procedures now permit named alien entities to be approved for increasing ownership levels in the future without the need for new approval.
  • The requirement that ownership interests below 5% be identified and tracked has been eliminated. This feature alone eliminates a lot of paperwork for what were truly de minimis interests.
  • The rules permit other subsidiaries and affiliates of the approved alien-owned company to benefit by an approval of their parent or affiliate.

The FCC estimates that these reforms will reduce the number of required alien ownership filings by a whopping 40% to 70% and will simplify those filings that do need to be made. The Commission emphasizes, though, that government agencies charged with investigating foreign ownership will continue to have the opportunity to perform that function in the context of either application approvals or requests for declaratory rulings.

Significantly, the Commission reiterated its position that companies must obtain permission either via the forbearance approach for ownership by aliens of significant non-controlling interests or by other FCC approval for alien control of these entities, before the alien ownership reaches the pertinent 20% or 25% threshold.  It also stressed that different approvals are required under the forbearance approach (applicable to non-controlling interests) and the standard approach (for controlling interests). This leaves in question the peculiar situation of Verizon Wireless, which did not obtain the requisite approvals before Vodafone acquired a greater-than-20% non-controlling interest in it.

The new rules adopted in the Second R&O are currently set to take effect on August 9.