FCC announces case-by-case approach to possible increases in indirect foreign control of broadcast licensees.
Indirect alien control of U.S. broadcast stations, long thought a taboo, may be on the way to acceptance at the FCC. In a Declaratory Ruling, the Commission has announced that it will consider easing up on such indirect foreign ownership of U.S. stations. But exactly when any easing up will occur, and how much alien control the FCC will eventually permit, remains to be seen.
Section 310(b)(3) of the Communications Act requires that entities holding certain FCC-issued licenses (for broadcast and common carrier services and radios serving aircraft while en route) must be organized under U.S. law AND may have no more than 20% foreign ownership. By contrast, Section 310(b)(4) of the Act permits such licensees to be indirectly controlled by separate entities up to 25% of which is owned by alien interests. In other words, while the license holder itself cannot be more than 20% foreign-owned, up to 25% of its parent company may be owned by foreign individuals or companies (even if the parent, which must be a domestic U.S. entity, is a 100% owner of the licensee).
The convoluted structure of Section 310(b)(4) suggests that the Commission might be able to allow entities with more than 25% alien ownership to control such FCC licensees – as long as an appropriate public interest determination is made. Historically, though, the Commission has strictly adhered to the 25% benchmark: it has never made such a public interest determination and, consequently, it has effectively established 25% as a hard and fast maximum not to be exceeded.
But now the Commission says that, going forward, it will be more open-minded to – and is, indeed, effectively inviting proposals for – greater indirect foreign ownership and control of broadcast licensees.
In doing so, however, the Commission stops short of announcing any policies or guidelines that might apply to such proposals. Instead, unsure of what kinds of proposals may be brought to it, the FCC wants to take a look at specific proposals before it adopts any universal policies. Accordingly, it will proceed on a case-by-case basis. As decisions are reached in individual cases, a body of law will develop that will guide parties seeking similar relief in the future. Over time, the case-by-case approach may permit the adoption of streamlined procedures for foreign ownership requests.
How will the case-by-case process work? Before foreign ownership of the parent of a broadcast licensee may exceed 25%, the parties to the transaction must request a declaratory ruling from the Commission. That request must set forth all the facts and circumstances which, in the requesters’ view, establish that the proposed transaction would be in the public interest. Note that, when the transaction involves an assignment of license or transfer of control, the parties must also file the necessary application (e.g., Form 314 or 315) along with the declaratory ruling request. But the Commission cautions that some transactions that do not rise to the level of an assignment or transfer – and thus do not require such an application – may still require submission of a declaration ruling request.
The Declaratory Order makes clear that, as it does in the telephone area, the FCC will consult with and “afford appropriate deference to” various other government agencies when it considers such requests. The agencies the FCC has in mind include those with expertise on issues related to national security, law enforcement, foreign policy, and trade policy – presumably the Department of Homeland Security, the State Department, the Department of Justice and the FBI, and possibly others. In the telephone context such agencies have required foreign telephone investors to agree to conditions that enable the U.S. to exercise its national security functions. It is at least possible, if not likely, that similar conditions may be imposed in the broadcast context.
As the FCC sees it, relaxing foreign ownership restrictions may open up new sources of capital for applicants (including minority individuals, local residents and others) seeking to acquire broadcast licenses that they might not otherwise be able to afford. The Commission is also hoping that such relaxation could encourage other countries to relax restrictions against investment by U.S. citizens. Proposals which advance those objectives will have the best chance of obtaining approval.
It is, however, apparent from the separate statements of the Chairman and Commissioners that they have diverse perspectives on the benefits that may be realized from increased alien investment in broadcast licensees. The Chairman, for example, emphasizes advancement of spectrum efficiency, which suggests that he is looking for foreign capital to facilitate TV channel sharing and relocation of TV stations from the UHF band to the VHF band. Other Commissioners, by contrast, seem more interested in providing capital to widen ownership diversity in the face of significant recent industry consolidation.
In the eyes of many this relaxation is overdue. The FCC has in recent years allowed majority foreign control of telephone companies which are subject to the same Section 310(b) limits as broadcast licensees. While the Commission has attributed its hard-line adherence to the 25% level on the broadcast side to concern about national security, the same concern applies to telephone service: in times of emergency, U.S. citizens should have immediate and ultimate control over critical communications facilities, both broadcast and telephone. The Commission finally appears to be recognizing that there is little if any reason to distinguish between the two services.
With no explicit guidelines on the table, and possible divergence of goals among the Commissioners, many questions remain unanswered, among them: How easy it will be to obtain approval of foreign investment in broadcasting? Will majority foreign control be permitted? Will TV will be treated differently from radio? Nevertheless, we anticipate that foreign investors will be attracted to U.S. investment opportunities. As that happens, we expect to see more and more requests for declaratory rulings seeking approval of a range of financial deals. Through the gradual development of policies and practices in this case-by-case manner, we can expect a new – and ideally more relaxed – approach to foreign ownership in the broadcast industry to emerge.