FCC Considering Changes to Broadcast Foreign Ownership Rules

Under the NPRM, the FCC would seek comments on two specific proposals, a senior official told us. One is a limit on the specific approval for every foreign individual who has a share in the broadcaster by requiring only that foreigners who have a 5 percent or larger ownership would require individual approval by the commission, the FCC official said. The other proposal would bring prior approval of foreign ownership interests for broadcasters in line with the same prior approval rules governing foreign ownership interests in common carriers, the official said.

On the FCC blog Thursday, Wheeler said the NPRM would make demonstrating compliance with foreign ownership rules "better adapted to the current business environment -- while at the same time preserving the Commission’s case-by-case public interest review and national security protections."

At issue is Section 310(b)(4) of the Communications Act, which sets a 25 percent foreign ownership cap on any company granted a broadcast license. The FCC in 2013 clarified its rules to say it would "review applications and petitions for declaratory rulings proposing such ownership on a case-by-case basis." Foreign ownership was a sticking point earlier this year when the FCC issued a declaratory ruling allowing Pandora Radio to buy KXMZ(FM) Box Elder, South Dakota (see 1506020035">1506020035). That was after the Media Bureau said ownership documentation Pandora submitted -- such as proxy vote mailing addresses and SEC form 13Fs -- wasn't adequate to show its foreign ownership didn't exceed that cap.

Any liberalization of foreign ownership rules is likely to get broadcaster support. The underlying -- and dubious -- assumption broadcast companies have to contend with is that stock held under a street name is presumed not to be held by an America, said a telecom attorney with experience with minority broadcasters. The Pandora matter illustrated the need for the commission to better lay out going forward how foreign investors can invest in American broadcasters -- especially as access to capital domestically is often troublesome for small- or minority-owned broadcasters and as a means for opening the door for American broadcasters expanding their businesses internationally, the lawyer said. An NAB spokesman said that while not having seen the proposal, a liberalization of foreign ownership rules is something the organization has sought for years.

Commissioner Michael O'Rielly last month proposed reforms to foreign ownership rules, most notably removing the cap on foreign ownership and easing the path for foreign companies investing in the U.S. communications universe (see 1509230073). "In an increasingly global economy, it is an impossible task for a publicly traded company to establish the identity, let alone the nationality, of the majority of its shareholders," O'Rielly said in May in a statement along with the Pandora ruling. "The Commission can, and should, go beyond the current case-by-case approach ... by setting rules and policies affirmatively permitting more foreign ownership, subject to our authority to reject any application, pursuant to coordination with executive branch agencies, to address uncontroverted national security concerns." O'Rielly was the inspiration behind the NPRM, Wheeler said. In a statement Thursday, O'Rielly said he still needs to review the NPRM but he "appreciate(d) the Chairman's willingness to do more on foreign ownership. This doesn't decrease the need to also streamline the 'Team Telecom' review process."

The NPRM wouldn't address issues like 25 percent cap on foreign ownership, as the FCC official said that being set in the statute would have to be addressed by Congress, not the agency. However, a separate FCC official said the public interest clause in the 25 percent ownership rule could give the agency discretion that could be used to bring further changes, such as declaring a higher percentage is allowable before heavy scrutiny of a transaction kicks in.