On August 17, 2012, the United States Federal Communications Commission took an action which will simplify the process for foreign-owned entities to invest in the United States telecommunications service marketplace. The result will create new opportunities for foreign investment in U.S. telecoms.
The federal Communications Act long has contained limitations on foreign ownership of entities holding U.S. telecommunications licenses. Those limitations are codified at Section 310(b) of the Communications Act (47 U.S.C. § 310(b)). Those limits include outright prohibitions against licenses being held by foreign entities or representatives of foreign entities. There is also a prohibition against licenses being held by any company of which more than twenty percent of the stock is voted by foreign entities, representatives of foreign governments, or corporations organized under the laws of foreign countries. Finally, corporations which are directly or indirectly controlled by other corporations of which more than twentyfive percent of the stock is owned or voted by foreign entities or their representatives, foreign governments, and foreign corporations may not hold licenses if the FCC determines that such ownership is not in the public interest. These Section 310(b) limitations have been significant impediments to foreign ownership of U.S. telecommunications carriers. In some cases, the result has been to preclude such investment. In other cases, the restrictions have forced foreign investors to utilize complex and arcane corporate structures so as not to run afoul of the restrictions.
Under the new policy announced by the FCC on August 17, it will no longer require foreign investors to comply with the twenty percent direct foreign ownership limitation on common carrier licenses in which the licenses are held through U.S.- organized entities that do not control the licenses, to the extent that such foreign ownership is consistent with the public interest based on public interest criteria established by the FCC for indirect foreign ownership. In short, applicants for telecommunications common carrier licenses whose foreign ownership held through U.S. corporations exceeds twenty percent will have the opportunity to show that the application is in the public interest and those applications will not be barred by the twenty percent direct foreign ownership restriction, provided that the U.S.- organized entities do not control the licenses.
The FCC decision to disregard the statutory 20 percent foreign ownership limit on U.S. telecom facilities held through U.S.-organized entities will neither impact nor impede the ability of certain Executive Branch departments to review proposed foreign ownership of U.S. telecommunications facilities for any national security, law enforcement, or public safety concerns. This interdepartmental review process typically involves the Department of Justice, the Department of State, the FBI and the Department of Defense. That process, sometimes referred to as “Team Telecom,” will continue.
The FCC was able to achieve this result through a provision of the Communications Act which allows it in certain situations to forbear from applying and enforcing statutory requirements. Importantly, the August 17 relaxation of the foreign ownership limitation is applicable only to telecommunications common carrier licenses (such as domestic and international voice telephone and data public network operators). It is not applicable to radio or television broadcast station licenses. The ban on direct foreign ownership of broadcast licenses and the limitations on indirect foreign ownership of broadcast licenses remain in effect and are not impacted by the FCC's recent action.