By Lee G. Petro 

FCC has released new streamlined rules to permit the expedited review of foreign investment in common carrier and aeronautical radio licenses.  If Commissioner Pai has his way, these changes to the FCC’s rules and policies may foreshadow further relaxation of the foreign ownership restrictions for broadcast radio licenses as well.

The Communications Act generally limits the ownership interest in an FCC licensee to 20% directly held by a foreign company, or 25% by a foreign holding company.  During the 1990s, the FCC adopted rules and policies to permit foreign ownership stakes above 25% if the investor was from a WTO member country and the FCC determined such stake was in the public interest.  However, prior FCC approval still was required, through the submission of a petition for declaratory ruling.  For investments by entities located in non-WTO countries, the FCC required the interested party to demonstrate that the investor’s home country offered “effective competitive opportunities” (ECO) to investors from the United States before the FCC would find the investment to be in the public interest.

Under the new rules, the FCC will eliminate the disparity between WTO and  non-WTO countries, and no longer require an ECO showing for investors from non-WTO countries.  Further, the FCC will no longer require the identification of foreign equity holders that have 5% or lower voting interest (10% or less for certain foreign institutional investors).  The FCC will still require parties to file petitions for approval of initial voting stakes above those levels, but the new rules eliminate the need for parties to return to the FCC under certain circumstances. 

For example, the FCC will permit parties to obtain prior approval for specific foreign investors to increase their equity or voting interest beyond the level specified in the initial petition.  Thus, a petitioner can receive prior approval for a foreign investor to increase its previously-approved non-controlling stake up to 49.99% at some future point.  In addition, petitioners can seek prior approval for a foreign investor to increase its previously-approved controlling stake up to 100%. 

The FCC also will permit affiliates and subsidiaries of a licensee to rely on the FCC’s grant of a foreign ownership stake so long as the new equity/voting stake complies with the FCC’s rules, and reference is made to the prior grant of authority.  An additional change in the rules will permit a licensee to insert a new foreign investor into the ownership chain without prior approval, so long as the new entity is under 100% common ownership and control of the previously-approved foreign investor.  Finally, under the new rules the FCC will permit a licensee to add new geographic areas or services without having to file for new approval, so long as such interest otherwise complies with the FCC’s rules and policies.

While these rules modify the rules and approval process for common carriers and aeronautical radio licensees, which will become effective 30 days after publication in the Federal Register, the FCC did not apply these new rules to the broadcasting industry.  Instead, the Report and Order specifically noted that there was an ongoing proceeding dealing with broadcast foreign ownership issues.  That proceeding was initiated in response to a request for clarification by a number of parties seeking to have the FCC permit greater foreign investment in the broadcasting industry, and Commissioner Pai is on record as supporting it, calling the current regime “anachronistic” and stating that similar changes would “bring vitality” and “boost minority ownership” in the broadcasting industry. 

There is almost universal support for the FCC to align its rules and policies for all services, including broadcasting.  We will keep you posted on the status of this proceeding.  In the meantime, please contact us with any questions.

Source: Client Alert