The Federal Communications Commission (FCC or Commission) is expected to adopt a declaratory ruling at its November 14, 2013 open meeting clarifying the FCC’s foreign investment rules for broadcast properties. Specifically, the declaratory ruling will reverse long-standing policy and affirm that the FCC will consider proposals for foreign investment in broadcast licensee parent companies in excess of 25 percent on a case-by-case basis. Currently, the FCC applies a de facto 25 percent cap on such investment.
On August 31, 2012, the Coalition for Broadcast Investment (CBI) sent a letter to the Commission requesting that the agency clarify that it “is prepared to exercise its discretion with respect to broadcast proposals under Section 310(b)(4) [of the Communications Act].” Section 310(b)(4) specifies that:
No broadcast or common carrier or aeronautical en route or aeronautical fixed radio station license shall be granted to or held by—
(4) any corporation directly or indirectly controlled by any other corporation of which more than one-fourth of the capital stock is owned of record or voted by aliens, their representatives, or by a foreign government or representative thereof, or by any corporation organized under the laws of a foreign country, if the Commission finds that the public interest will be served by the refusal or revocation of such license.
47 U.S.C. § 310(b)(4). As the CBI letter noted, Section 310(b)(4) does not prohibit investment exceeding 25 percent in the parent company of a broadcast licensee. Instead, Section 310(b)(4) merely authorizes the FCC to disallow such foreign investment upon a finding “that the public interest will be served.”
We do not expect the Commission to adopt detailed criteria at this time for allowing or disallowing foreign investment above the 25 percent level. Rather, the FCC will evaluate proposed investments on a case-by-case basis. The Commission currently applies a similar approach to foreign investments in wireless carriers, cable operators, and common carrier licensees.
If the declaratory ruling is adopted, it will reverse the agency’s current informal prohibition on non-U.S. equity ownership in excess of 25 percent. This could eliminate the need for would-be investors with substantial non-U.S. participation to choose between foregoing investment in broadcast stations altogether, or attempting to structure debt or contingent future interests to substitute for risk capital that, absent the Commission’s overly restrictive method of applying Section 310(b)(4), would be supplied in the form of equity. This has the potential to foster competition, spur innovation, and increase diversity of ownership.
In its comments in support of the CBI proposal, Wiley Rein also encouraged the FCC to clarify that publicly-traded broadcast companies may, as is permissible for common carriers, rely on addresses of record to certify compliance with Section 310(b)(4). It is unclear whether the Commission will address this issue in the declaratory ruling.
In announcing that she had circulated the declaratory ruling, Acting Chairwoman Mignon Clyburn declared that “[a]pproval of this item will clarify the Commission’s intention to review, on a case-by-case basis, proposed transactions that would exceed the 25 percent benchmark that restricts foreign ownership in companies holding broadcast licenses.” Commissioner Ajit Pai, who previously has called for the FCC to “level the regulatory playing field,” issued a statement criticizing the current disparity in foreign investment rules, urging the Commission to “revise this out-of-date restriction.” Although Commissioner Jessica Rosenworcel has not yet commented on the draft ruling, she previously has rejected disparate treatment for foreign investment among Commission licensees, stating that “transparency, efficiency, and confidence in investment should not be limited to telecommunications networks.”