FCC Foreign Ownership Proposals

On August 9, 2011, the FCC adopted a Notice of Proposed Rulemaking to simplify its foreign ownership review process for U.S. companies with wireless common carrier and aeronautical licenses seeking approval of foreign ownership holdings above 25% ...

By Michele Farquhar, Ari Fitzgerald and Chris Termini in Washington, DCFCC Foreign Ownership Proposals

On August 9, 2011, the FCC adopted a Notice of Proposed Rulemaking proposing measures to simplify its foreign ownership review process for U.S. companies with wireless common carrier and aeronautical licenses seeking approval of foreign ownership holdings above the 25% benchmark mandated by Section 310(b)(4) of the Communications Act.  The FCC stated that its proposals will reduce the regulatory burdens imposed on spectrum licensees and lessees in obtaining foreign investment, while preserving the Commission’s ability to protect interests related to national security, law enforcement, foreign policy and trade policy.  The FCC expects the proposals to reduce the number of required foreign ownership filings by more than 70%.

Current Review Process:  Under the Commission’s current regulatory framework, licensees seeking approval of their U.S. parents’ foreign ownership must receive permission from the FCC before the parent’s foreign interest can exceed 25%.  The FCC places the petitions for declaratory ruling on public notice, typically within one or two months of filing.  In reviewing the foreign ownership petitions, the FCC determines whether the proposed investor is from a WTO Member country or not.  If so, the Commission applies an “open entry” standard to the indirect foreign indirect investment, which creates a rebuttable presumption that it will not raise competitive concerns in the U.S.  If the proposed investor is from a non-WTO Member country, however, the Commission will apply an “effective competitive opportunities” standard, which considers whether the foreign country hosting the proposed investor’s principal place of business offers “effective competitive opportunities” to U.S. investors in the same wireless service sector.

The current review process requires licensees to maintain detailed records on the citizenship and places of business of their investors—even those that hold minor indirect interests through intervening investments and/or holding companies.  Likewise, licensees must regularly provide the Commission with updates concerning the nature and scope of their foreign investors.

NPRM Proposals: The material proposals set forth in the NPRM include the following:

  • Preserve the General Character of the Review Process.  The current notice and comment process would be retained, and licensees would still need to seek FCC approval via a declaratory ruling, await public notice and receive a written FCC order before the aggregate foreign ownership of their controlling U.S. parent companies could exceed 25%.
  • Comment Sought on WTO vs. Non-WTO Member Investment.The Commission seeks comment on whether it should retain the distinction between WTO and non-WTO Member investment, modify the distinction or eliminate it altogether.
  • Automatic Extension of Approval to Subsidiaries.  The Commission proposes to issue Section 310(b)(4) rulings in the name of the U.S. parent (not the licensee), and allow the ruling to automatically extend to the parent’s subsidiaries and affiliates, whether existing at the time of the ruling or subsequently formed or acquired.
  • Follow-on Investment Approval.  U.S. parents would be allowed to ask the Commission to permit named foreign investors to increase their direct or indirect interests at any time after the Commission’s initial ruling, up to and including a non-controlling 49.99% interest, thereby obviating the need for U.S. parent companies to make additional filings when a named foreign investor that the FCC has already approved increases its investment holdings.
  • Express Identification of Foreign Investors.  Although a U.S. parent would still be required to seek Commission approval before its aggregate foreign ownership could exceed 25%, it would no longer need to expressly identify any foreign investor that holds an interest of 25% or less, subject to the next proposed rule.
  • Express Identification of Investors Holding an Interest of 10% or More.  The Commission would require petitions to contain the name, address, citizenship and principal businesspr businesses of any individual or entity -- regardless of citizenship -- that holds or proposes to hold a direct or indirect interest of 10% or more, or any "controlling" interest in the U.S. parent.
  • Application of Section 310(d) for Assignment and Transfers of Control.  The Commission would continue to subject its rulings to the “separate and independent” requirement that licensees obtain FCC approval for the assignment or transfer of control of the license, pursuant to Section 310(d).
  • Executive Branch Cooperation.  The Commission would continue to coordinate with the appropriate Executive Branch agencies, and accord deference to such agencies with respect to matters of national security, law enforcement, foreign policy and trade policy.

Further Streamlining Proposals: Although the Commission expects its proposals to result in a significantly streamlined review process for foreign investment, the proposed changes do not go as far as many observers had hoped.  Consequently, some parties will likely propose more fundamental changes to the FCC's foreign ownership review process during the comment period.  Rather than adopt the modest changes that it has proposed, the Commission may be persuaded to consider more sweeping changes to streamline the foreign ownership review process.  Such changes could include the following:

  • Notice Filing to the FCC.  If a foreign investor proposes to acquire an indirect equity interest in a licensee of more than 25%, the licensee could be required to submit a notice to the Commission, while notice of a foreign investor’s intent to acquire a controlling interest in the licensee could be set forth in transfer applications filed with the Commission under Section 310(d) of the Communications Act.
  • Limit on the Determination of Whether a Foreign Investor Possesses Controls.  Following notice, the Commission could impose a “shot clock” to determine whether the licensee is directly or indirectly “controlled” by the foreign investor.  At the expiration of the shot clock, if the Commission has not made this determination, the foreign investor would be deemed not to control the licensee, and the investment would be permitted.
  • Presumption for WTO Members.  If the Commission concludes that the licensee would be controlled by the foreign investor, it would apply a presumption in favor of permitting the investment if the foreign investor was organized under the laws of a WTO Member.  If the investor is organized under the laws of a non-WTO Member, the Commission could apply a full public interest analysis.
  • One-Time Review.  Once the Commission approves a foreign entity’s investment, the licensee would not be required to provide any further notice or information to the Commission regarding that foreign entity, even if its foreign ownership changed.

Comments to this proceeding (IB Docket No. 11-133) are due on December 5, 2011, and replies are due on January 4, 2012.

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