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Legal Update

FCC Clarifies Intent to Review Foreign Investment in Broadcast Licenses— Effect On As Yet Unscheduled Incentive Auction Unclear

18 November 2013
Mayer Brown Legal Update

On Thursday, November 14, the US Federal Communications Commission issued a declaratory ruling that is intended to ease the way for foreign investment in the US broadcast sector. The ruling comes in response to the request from the Coalition for Broadcast Investment (CBI), which asked the Commission to clarify that it will “conduct a substantive, facts and circumstances evaluation of proposals for foreign investment in excess of 25 percent in the parent company of a broadcast licensee” (for more information, see our Legal Update “FCC Modernizes Foreign Ownership Review Policies and Procedures for Wireless Telecommunications Licensees; Seeks Comment on Similar Relief for Broadcast Licensees”).

Section 310(b)(4) of the Communications Act of 1934 limits foreign investment in US-organized entities that control broadcast licensees to 25 percent unless the Commission rules that a higher level of investment would be in the public interest. This foreign ownership restriction was originally conceived to address homeland security interests during wartime and with the intent to protect the integrity of ship-to-shore and governmental communications and to thwart the airing of foreign propaganda on broadcast stations. Historically, this benchmark has been viewed as an outright ban on foreign investment in broadcast licensees that would exceed the benchmark, rather than as a trigger for the Commission to exercise its discretion. CBI asserted that the Commission “will not even consider” proposals for above-benchmark foreign investment in broadcast licensees, and argued that modernizing the rules would “place broadcasters on the same footing as every other industry participant and signal that the broadcast sector continues to be a vital and valued part of the 21st-century media and telecommunications ecosystem.”

The declaratory ruling clarifies the Commission’s intent to review requests proposing foreign ownership in broadcast entities above the 25 percent benchmark on a case-by-case basis. The ruling does not set forth specific procedures or guidelines. Rather, as is the case for foreign investment in wireless licenses, applicants must provide detailed ownership information sufficient for the Commission to make the public interest finding required by Section 310(b)(4). In addition, the Commission will continue to coordinate with and defer to Executive Branch agencies on issues related to national security, law enforcement, foreign policy and trade policy in reviewing requests for approval of broadcast foreign investment.

The Commission’s action evinces its recognition that the media landscape has evolved significantly since Section 310 was enacted and that a 25 percent cap on foreign ownership is no longer necessary in the modern era. Moreover, the ruling creates regulatory parity between the broadcast and wireless sectors, each of which rely on spectrum to provide service.

While we view the ability to attract more meaningful levels of foreign capital as positive for the American broadcasting sector, the effect that this favorable decision will have on the as yet unscheduled incentive auction of broadcast spectrum is unclear. First, while incumbent broadcasters may still decide to enter the auction, they may have in mind higher market exit prices due their new ability to raise foreign capital. On the other hand, incumbent broadcasters may determine that the ability to attract foreign investment provides a more reliable financial path to offer new, advanced digital services, thereby rendering auction participation less attractive. Also, it is possible that the new favorable policy may stimulate activity from foreign investors seeking a quick return on investment in broadcasters intent on entering the auction. Finally, prospective broadcasters may find the path to market entry easier with due to the ability to secure foreign investment and, thus, may seek to purchase stations with the intent of continuing in the broadcast sector.

For more information on the topics raised in this Legal Update, please contact or .

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