March 3, 2015 - 4:03 pm
By Michael O'Rielly | Commissioner

For decades, extensive studies and corresponding analysis have demonstrated the vast benefits of removing barriers to international trade. Our experiences from previous trade agreements have shown the direct payoffs of eliminating or reducing artificial barriers and protectionist measures. Among countless other benefits, increased trade has produced higher standards of living for Americans, expanded foreign markets for our products, reduced costs for goods and services. It's also one area where many Republicans and Democrats in Congress and elsewhere, as well as the current Administration, strongly agree. Fortunately, the Commission has the opportunity to further this bipartisan cause by reducing barriers to foreign investment in the U.S. communications marketplace. Let's seize this moment!

The Communications Act already affords the Commission the flexibility to relax restrictions on foreign investment in certain radio licensees, including broadcast and commercial wireless. Specifically, current law prohibits greater than 25 percent of foreign investment in a U.S. entity that controls, directly or indirectly, a U.S. radio licensee, but only if the public interest would be served by the Commission refusing or revoking a license. In other words, the Commission is free to permit a higher foreign limit or waive the limit altogether, which was confirmed in the Commission's unanimous November 2013 Declaratory Ruling. Disappointingly, the Commission declined, at that time, to make such a positive step, deciding only to confirm that requests from current or prospective broadcast licensees seeking approval for foreign investment above the threshold would be considered on a case-by-case basis. What we need is to get the ball rolling by setting rules and policies that affirmatively permit foreign ownership above the 25 percent cap once and for all.

The case to remove the shackles on foreign investment in U.S. companies is exceptionally strong. First and foremost, U.S. companies, especially smaller ones, stand to benefit from new sources of capital necessary in the super-challenging, ever-changing, consumer-centric, competitive environment that is the U.S. marketplace. From the thousands of exhibitors at the International Consumer Electronics Show to the smaller Small Business Expo held a few weeks ago at the Commission and everywhere in between, the dreamers and risk-takers are profoundly focused on ways to obtain new streams of funding. For the firms trying to add new diverse voices to the market, the option of foreign investment rather than traditional capital lines, which have proven difficult to access in the past, would be very welcome. For struggling firms, such capital could act as life blood keeping the doors open or providing funding for growth and job creation. And, established companies will have more capital options, thereby reducing their borrowing costs, which frees up the budget for product and service deployment. In some regards just having foreign capital as a possibility will be constructive.

Equally important, the Commission's past reluctance to be receptive to greater foreign investment has been used as an excuse by other nations to retain indefensible trade barriers that harm U.S. companies. As U.S. firms have tried to invest internationally, they have run into legal and procedural roadblocks by foreign governments. In some instances, the responding countries have used the differences between how the U.S. considers foreign ownership and other nations. Just look at some of the countries that allow greater foreign investment in communications: United Kingdom, 100 percent; South Korea, 49 percent; Mexico, 49 percent; and India, 74 percent. Note that even China holds itself out as allowing 49 percent (although internal practices and barriers suggest otherwise). If we want U.S. companies to be able to invest internationally and take advantage of world markets, which can provide significant returns on investment, build natural partners for greater U.S. communications industry growth, and allow international diversification, we need to be willing to remove any perception that the U.S. is not willing to approve greater foreign investment.

To date, the Commission's new broadcast case-by-case process has been less than successful. Its passive nature hasn't resulted in the filing of many applications, especially since the international perception is that our rhetoric may be positive but the expected outcome of any application would still be negative. In fact, the Declaratory Ruling made clear that it was just a restatement of the Commission's approach, not putting out a welcome mat. As such, it didn't provide the necessary comfort for those seeking to invest in U.S. communications companies.

Another reason for the lack of progress is that it has been entangled in a side fight over an application seeking consent to the transfer of control of a radio station to Pandora Radio LLC. In that case, on which I take no position at this time, the Commission must decide whether Pandora should be allowed to hold a radio station license. In order to do so, Pandora, a U.S. company, must show that its parent company's percentage of foreign shareholders is sufficiently below the 25 percent benchmark. The record indicates that while Pandora estimates its foreign investment in the 15-17 percent range, like all publicly-traded companies generally, it cannot establish the identity, let alone the nationality of the majority of its shareholders. Thus, the application sits.

Without judging the merits of the pending petition or application, it seems reasonable in our global marketplace to use another measurement, including the possibility of a representative sample size to evaluate foreign ownership. To require publicly-traded U.S. companies to identify and supply to the FCC the precise details of their shareholder make-up, which can change on a daily or hourly basis, does not comport with the highly dynamic electronic and international nature of capital markets. On any given day, does GM or GE know the nationality of each of its shareholders? What about our national defense companies, like Lockheed or General Dynamics, which certainly hold an important place in our nation's security?

Moreover, expanding foreign investment in broadcast can be accomplished without jeopardizing or threatening national security in any way. Just like in the Declaratory Ruling, the Commission does retain the ongoing ability to closely scrutinize and reject, as necessary, any application that presents concerns to our national security agencies. One option would be to automatically grant applications unless, and only if, a very simplified filing necessitates further review for national security reasons. Alternatively, as I have previously suggested, we could establish a presumption that the applications should be granted, thereby shifting the burden on the Commission to reject. And any national security review of foreign investment in both broadcast and wireless licensees can have a more formalized process, including time limits to ensure a timely conclusion.

Working together, Republicans and Democrats can expand foreign investment and improve the growth projections for the U.S. communications industry. By being willing to create real flexibility when it comes to the foreign investment requirements, the Commission would facilitate access to capital, expand the ability of U.S. firms to invest internationally, while at the same time preserve national security protections.