Regulatory Update — FCC Proposes to Reduce Barriers to Foreign Investment

At its August Open meeting, the FCC proposed to streamline the requirements related to its review of foreign ownership of entities holding common carrier radio licenses and some aeronautical radio licenses under Section 310(b)(4) of the Communications Act that may have become too burdensome and complex. These proposed changes do not affect the requirements that apply to FCC review of foreign ownership in broadcast licensees. These changes, if adopted, would reduce regulatory barriers and delay to foreign investment in many U.S. telecommunications businesses.

FCC staff commented that the current requirements place a significant burden on licensees requiring time consuming reports at significant costs. These requirements also place a strain on FCC resources to review the numerous and voluminous filings required by the rules. Reform of the foreign ownership review procedures should increase predictability for foreign investors, benefitting the economy and job creation, according to the FCC staff.

Specifically, in the Notice of Proposed Rulemaking (“NPRM”) released on August 9, the FCC seeks comment on several proposed changes to its practices and procedures used for Section 310(b)(4) determinations on foreign ownership:

• The FCC proposes to issue Section 310(b)(4) rulings in the name of the U.S. parent company rather than the specific licensee. This would eliminate the need for each subsidiary or affiliate of the company to obtain its own ruling.
• In order to reduce the need for companies to file multiple requests for changes in foreign ownership after they receive their initial ruling, the FCC proposes to:
  • Allow U.S. parent companies the option of requesting approval for any named foreign investor to increase their ownership from the current percentage up to a non-controlling 49.99% share; and
  • Allow foreign investors acquiring a controlling interest in a U.S. parent company who is named in a transfer of control application to later acquire 100% of the equity and/or voting interests in that parent company.
• The FCC also proposes to allow U.S. parent companies to have 100% aggregate foreign ownership as long as no one single foreign investor’s ownership interest exceeds the 25% equity or voting interest in the parent company.
• In the context of a corporate reorganization, the FCC seeks comment on the requirement for U.S. parent companies to obtain additional approval when including new foreign-organized entities in their vertical ownership chains.
• The FCC asks whether it should retain its practice of issuing foreign ownership rulings on a service-specific and geographic-specific basis.
• The FCC also seeks input on requirements that apply to investors located in World Trade Organization (“WTO”) countries versus those located in non-WTO countries and whether it should maintain the distinction or otherwise modify its review of non-WTO investors.
• Finally, the FCC proposes multiple revisions to the information that must be provided in petitions for declaratory rulings and streamlining procedures for processing such petitions.

While the FCC seeks to reduce barriers to investment in telecommunications, the proposed changes would not affect the statutory requirement to seek Commission approval generally of proposed indirect foreign ownership over the 25% threshold and all transfers of control. The Commissioners also emphasized that the proposed changes do not relieve the Commission of its obligation to protect the public interest and national security interests. In separate remarks about the proposal, Commissioner Michael Copps expressed some skepticism that the existing rules place an unwarranted burden on licensees and foreign investors and reiterated the need to scrutinize the impact of the proposed changes on “American consumers, American businesses and America’s well-being.”

The FCC has not yet announced comment and reply comment deadlines.

Please do not hesitate to contact us if you would like more information about how the FCC’s foreign ownership requirements apply to your company or would like to weigh in on the FCC’s proposed changes:

Catherine Wang
catherine.wang@bingham.com
202.373.6037