New FCC Rules Codify Foreign Ownership Requirements for Section 310(b) Licensees

Key Takeaways

• The FCC issued a new Foreign Ownership Report & Order aiming to ensure clear reporting of foreign ownership by Section 310(b) licensees, including broadcast, common carrier, and aeronautical fixed and aeronautical enroute licensees.
• The new rules clarify the requirements and streamline the process for requesting a declaratory ruling to allow foreign ownership exceeding the statutory foreign ownership limits.
• Guidance is provided for identifying the controlling U.S. parent; reporting for LPs and LLCs; reporting for trusts and trustees; determining U.S. residency requirements for foreign investors; and filing remedial petitions.

Pursuant to Section 310(b)(4) of the Communications Act of 1934, as amended, foreign entities are prohibited from holding more than an indirect 25% equity or voting interest in a U.S.-organized entity that controls a Federal Communications Commission (FCC or Commission) license unless the FCC determines that the foreign ownership arrangement would serve the “public interest.” Entities that wish to exceed this statutory limit must seek approval from the FCC by filing a petition for declaratory ruling.

The Foreign Ownership Report and Order (Foreign Ownership R&O) aims to streamline that process by codifying and/or clarifying existing Commission policies and practices. The Foreign Ownership R&O is focused on licensees subject to Section 310(b), which includes broadcast, common carrier, aeronautical fixed and aeronautical en route radio station licensees. The updates and changes to the Commission’s rules include action on the following:

• Controlling U.S. Parent. The Commission defines “controlling U.S. parent” as “the first controlling entity organized in the United States that is directly above the licensee(s) in the vertical chain of control and that does not itself hold a license subject to section 310(b).” This definition intends to help filers determine the basis on which to calculate aggregate foreign ownership interests, identify disclosable interest holders and ascertain interests that require specific or advance approval, thus avoiding follow-up inquiries from FCC staff and delays in processing arising from the submission of supplements to clarify ownership disclosures.
• LLCs and LPs. The Foreign Ownership R&O clarifies the treatment of limited partners in a limited partnership (LP) or members of a limited liability company (LLC), who under the FCC’s rules could be “deemed” to hold a greater voting interest than they actually hold. Specifically, if the foreign investor has an “uninsulated” interest—e.g., if they are involved in management or hold significant positions—the Commission will “deem” their voting interest in the entity(ies) immediately below to be equal to the voting interest held by the LP or by the LLC as a whole. The Foreign Ownership R&O clarifies that under these circumstances, “a finding of a deemed voting interest of 50 percent or more is not a finding of control in and of itself.”
  • An individual or entity deemed to hold a 50% or more interest, that does not hold de jure or de facto control, “may request advance approval in a petition for declaratory ruling . . . to increase its interest, at some future time, up to any non-controlling amount not to exceed a 49.99 percent equity or voting interest.”
• Trusts. The Foreign Ownership R&O clarifies the Commission’s rules regarding the identification of trustees of trusts that are disclosable interest holders in a controlling U.S. parent. Under the rules, a petition for declaratory ruling must disclose all trust and trustees “as a disclosable interest holder, if the entity or individual holds, or would hold, a direct or indirect interest of 10 percent or more, or a controlling interest, in the controlling U.S. parent of the petitioning common carrier and broadcast applicant or licensee.” The Commission has previously required providers to identify the trustees of a trust through supplemental filings, but this new rule integrates the practice into the petition for declaratory ruling itself. 
• U.S. Residency Requirements. The Commission clarifies that foreign investors do not need to maintain U.S. residency when investing in a company that files a petition for declaratory ruling.
• Remedial Petitions. When a licensee identifies a non-compliant foreign ownership interest, they must file a remedial petition with the Commission to seek approval of the non-compliant foreign ownership. This practice has always applied to publicly held companies, but previously was unavailable to privately held companies, effectively requiring privately held companies to restrict trading in their equity and voting securities to prevent inadvertent violations of the foreign ownership rules. The Commission amended and codified the following practices for remedial petitions:
  • Privately held companies may now use the remedial filing process to correct inadvertent non-compliance, and must “adhere to the remedial filing requirements applicable to publicly held companies.”
  • Any remedial petition for declaratory ruling must “contain all of the information required for an initial petition for declaratory ruling.” It will no longer be sufficient to only supply the information related to the “newly discovered” non-compliant interest.
  • If a U.S. licensee—whether privately held or public—satisfies the elements of the remedial filing requirements, “the Commission would not expect to take enforcement action related to the non-compliance.”

The Foreign Ownership R&O further addresses topics such as unique processing guidelines and foreign ownership considerations for broadcast licensees, as well as guidance regarding direct foreign investment in FCC licensees, among other updates. The new rules will become effective 30 days following White House approval of expanded information collection requirements and publication of a notice in the Federal Register.

Takeaways

The Foreign Ownership R&O is one of the latest Commission actions focused on deregulation and national security. Entities that believe that they are or will be subject to the Commission’s new rules adopted in the Foreign Ownership R&O should begin consulting with counsel to determine whether they have any new or remedial obligations.

Please do not hesitate to reach out if you would like additional information on the new rules or have any questions.