Broadcast Foreign Ownership Rules Relaxed

For many years, the industry was walled off from foreign investment representing more than 25 percent of the voting or equity in a station November 16, 2016

Previously in this column, we have discussed the ad hoc loosening of the historical restriction on foreign ownership of broadcast entities. For many years, the industry was walled off from foreign investment representing more than 25 percent of the voting or equity in a broadcast station. This restriction remained in place even after the wireless industry slowly introduced foreign ownership stakes above the 25 percent voting/equity limits.

In October 2015, the Federal Communications Commission proposed rules to bring parity between the various regulated industries, and on Sept. 30, 2016, the commission adopted rules to do just that. While the rules do make some allowances for the distinct ownership attribution standards for broadcast licensees, the FCC saw fit to bring all foreign ownership review under the same set of rules and policies.

Specifically, the FCC will permit parties seeking to introduce a foreign ownership stake in a broadcast licensee to submit a Petition for Declaratory Ruling when it files its assignment of license or transfer of control application. The petition should be submitted as an exhibit to the application and identify the foreign individuals or entities that would have an attributable interest in the broadcast licensee. The FCC determined that foreign ownership interests of 5 percent or less are not required to be reported in the application.

If the FCC approves a controlling foreign ownership stake, then that equity/voting foreign ownership stake may be increased up to 100 percent without seeking additional FCC approval. If the FCC approves a non-controlling foreign ownership stake in the licensee, then that interest may be increased to a 49.9 percent equity/voting ownership interest without obtaining new FCC authority. Moreover, these licensees will be permitted to acquire additional broadcast authorizations without seeking separate foreign ownership review, so long as the ownership structure remains the same.

While the statutory foreign ownership thresholds are the same for common carrier and broadcast licensees, the FCC’s rules and policies evolved into different standards for each service when determining the attribution of foreign ownership interests, and whether such interests may be insulated.

The FCC took note of comments calling for different insulation criteria and acknowledged broadcast licensees may have been forced to redraft their organizational materials if the common carrier rules were applied in toto. To avoid this situation, the FCC incorporated specific references to the broadcast ownership and insulation rules into its unified foreign ownership rules and affirmed that broadcast licensees will be able to rely on the current broadcast ownership and insulation criteria.

Finally, the FCC adopted a new standard for public companies to determine whether they are in compliance with the foreign ownership rules. Previously, the FCC required public companies to conduct surveys of their shareholders to confirm their compliance with the commission’s rules. In the event that the company could not confirm the nationality of a shareholder, the company was required to consider that shareholder as a foreign entity. Under the new rules, the public company will need to exercise due diligence to identify the nationality of its “known or reasonably should be known” shareholders, and establish procedures to monitor its foreign ownership levels. To that end, the FCC identified the sources that public companies will be permitted to monitor in their effort to remain in compliance with the FCC’s due diligence requirements.

The new rules will not become effective until at least 60 days after their publication in the Federal Register. In addition, since there are changes to the information to be collected by the FCC, separate approval of those new requirements must be obtained from the Office of Management and Budget.

FCC DEADLINES:

Nov. 14, 2016 — Deadline for radio stations to file Form Three in EAS Test Reporting System.

Dec. 1, 2016 — Stations with five or more full-time employees in Alabama, Colorado, Connecticut, Georgia, Maine, Massachusetts, Minnesota, Montana, New Hampshire, North Dakota, Rhode Island, South Dakota and Vermont must place their Annual EEO Public File Reports in the station’s public inspection file.

Dec. 1, 2016 — Stations with 11 or more full-time employees in Colorado, Minnesota, Montana, North Dakota and South Dakota file their Mid-Term EEO Report (FCC Form 397) with the FCC.

Petro is of counsel at Drinker Biddle & Reath LLP. Email: lee.petro@dbr.com.

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