Revised and Codified Standards for Public Interest Determinations

Revised and Codified Standards for Public Interest Determinations

1. Prior Approval of Foreign Ownership Under Section 310(b)(3) Forbearance and Section 310(b)(4)

28. 
    In the NPRM, the Commission did not propose to modify the basic principles that govern the calculation of foreign equity and voting interests in common carrier and aeronautical licensees and their controlling U.S. parent companies for purposes of determining compliance with the foreign ownership limits in section 310(b) of the Act.²⁹ Commission policy requires that any equity or voting interest held by an individual other than a U.S. citizen or by a foreign government or an entity organized under the laws of a foreign government be counted in the application of the statutory limits.³⁰ The list of cognizable interests includes nearly all forms of equity and voting interests held in the licensee and its controlling U.S. parent.³¹ While the NPRM did not propose to modify these long-standing basic principles for calculation of foreign ownership interests, we did ask for comment on a limited set of issues related to the calculation of foreign ownership interests held in or through limited partnerships, limited liability companies, and registered limited liability partnerships.³² We address these issues in Section IV.C of this Second Report and Order.³³
    
29. 
    The NPRM did not propose to change the requirement that common carrier and aeronautical radio station licensees file a petition for declaratory ruling under section 310(b)(4) of the Act to obtain Commission approval before direct or indirect foreign ownership of their controlling U.S. parent companies exceeds an aggregate 25 percent, measured as a percentage of the U.S. parents’ equity and/or voting interests. The NPRM reiterated the Commission’s long held view that the 25 percent benchmark may be exceeded only after the Commission affirmatively finds that the foreign ownership of a licensee’s U.S. parent company in excess of that amount is in the public interest.³⁴ The NPRM proposed to codify this requirement, as it applies to common carrier and aeronautical radio station licensees, as part of any rules adopted in this proceeding.³⁵ In adopting our section 310(b)(3) forbearance approach, we also required that common carrier licensees subject to section 310(b)(3) forbearance seek and obtain Commission approval by filing a petition for declaratory ruling or similar request before foreign ownership of the licensee exceeds the 20 percent limit in section 310(b)(3).³⁶ Moreover, in assessing whether the section 310(b)(3) forbearance approach would meet the statutory requirements for forbearance, we observed that the approach would protect consumers because the Commission would give public notice of, and seek comment on, a petition for declaratory ruling or similar request asking for approval of proposed foreign equity and/or voting interests in a common carrier licensee over 20 percent. This notice and comment process would inform any Commission decision to grant a petition for declaratory ruling to exceed section 310(b)(3)’s 20 percent limit and allow us to assess potential harms to consumers.³⁷
    
30. 
    We confirm the Commission’s long-standing policy that the statute requires us to review and approve foreign ownership of licensees subject to section 310(b)(4) before that foreign ownership exceeds the 25 percent statutory limit.³⁸ The Departments state that the NPRM’s proposal to codify the prior approval process ensures their ability to identify, review, and comment on foreign ownership in common carrier and aeronautical applicants, licensees, and spectrum lessees that may be of national security or law enforcement concern. ³⁹ Verizon asserts that, because the Commission has determined that foreign investment from WTO Member countries is presumptively in the public interest, the Commission may dispense with the need to engage in an individual review of foreign ownership interests from WTO Member countries.⁴⁰ It suggests that the Commission can rely on its initial licensing and transfer/assignment processes, and Executive Branch processes, to ensure that foreign investment is consistent with national security, law enforcement, foreign policy, and trade policy concerns.⁴¹ For the reasons discussed below, we find that Verizon’s argument is not persuasive and our long-standing policy remains necessary to the discharge of our obligations under section 310(b).
    
31. 
    First, we note that the presumption that WTO Member investment is in the public interest is simply that – a presumption that such foreign investment does not pose a risk of anticompetitive harm that would justify denial. This presumption is rebuttable. Moreover, the Commission does not presume that foreign WTO Member investment poses no other concerns – e.g., with respect to national security, law enforcement, foreign policy or trade policy.⁴² Rather, the Commission considers these additional concerns as part of its public interest analysis and independent of its review of competition issues.⁴³ As noted, the Commission accords deference to the expertise of Executive Branch agencies in identifying and interpreting issues of concern in the context of such foreign investment.⁴⁴
    
32. 
    Second, an applicant may have no foreign ownership – or its foreign ownership may be below the section 310(b)(4) limit – when the applicant files for an initial license or files to acquire licenses by assignment or transfer of control, but may seek to increase its foreign ownership after grant of an initial license or following approval of an assignment or transfer of control. We disagree that our review of foreign ownership interests from WTO Member countries that would exceed the statutory limits should occur only in the context of these applications, as Verizon suggests.⁴⁵ We confirm that the public interest mandate set out in section 310(b)(4) requires that we engage in prior review and approval regardless of whether the foreign investment would occur when an application is filed or at some point after an application receives approval. As the Departments have noted, this is particularly relevant for national security and law enforcement concerns.⁴⁶
    
33. 
    Finally, we are not persuaded by Verizon’s suggestion that eliminating the requirement to file a petition for declaratory ruling for foreign ownership from WTO Member countries will not compromise the ability of the Commission and the relevant Executive Branch agencies to review potentially problematic foreign investment. Verizon asserts this is so because the Commission would still refer requests for initial licenses and renewals and applications for transfer of control and assignment of licenses to the Executive Branch and at all other times the CFIUS process and “other Executive Agency processes” would provide any necessary check to protect national security interests.⁴⁷ CFIUS⁴⁸ conducts national security reviews of mergers, acquisitions, and takeovers by, or with, any foreign person that could result in foreign control of a U.S. business (a “covered transaction”).⁴⁹ This process, however, does not review start-up (or “greenfield”) investments.⁵⁰ Moreover, our experience has been that, for telecommunications transactions, many parties will negotiate agreements to resolve national security and law enforcement concerns with the relevant Executive Branch agencies and then file with CFIUS when negotiations are nearly completed. This suggests that the two processes are complementary.⁵¹
    
34. 
    In any event, it is the Commission to which section 310(b) assigns the responsibility to conduct public interest reviews of foreign ownership in excess of the statutory benchmark. While the Commission has exercised its discretion to rely substantially on the views of Executive Branch agencies for their expertise on matters of national security, law enforcement, foreign policy and trade policy in cases involving foreign investment in U.S. common carrier and aeronautical licensees, we do not believe it would be appropriate for us essentially to delegate this statutory responsibility to such agencies. At the same time, and in response to the comments we have received, this order substantially streamlines our exercise of that responsibility.
    
35. 
    Vodafone asserts that its proposal to replace the declaratory ruling process with a “streamlined section 310(b)(4) notice procedure” for reviewing foreign investment in wireless licensees would not compromise national security, law enforcement, foreign policy, or trade policy interests.⁵² This proposal would require a wireless licensee to submit a “section 310(b)(4) notice” to the Commission whenever it believed foreign ownership in its controlling U.S. parent would exceed 25 percent.⁵³ Vodafone proposes that the Commission have a defined period of time, such as 30 days, in which to review the filing, refer the filing to the appropriate Executive Branch agencies, and act (or not act) on the filing.⁵⁴ We find that Vodafone’s proposed notice procedure would not, as a practical matter, result in appreciable cost savings or reduced burdens on licensees, or expedite the existing review process. The proposal would require licensees to notify the Commission in advance of foreign investment and would provide the Commission and Executive Branch agencies the opportunity to conduct reviews. These are characteristics of the existing petition for declaratory ruling process. To the extent that the proposal may be intended to eliminate the need for the Commission to write a ruling approving the specific foreign investment identified in a petition for declaratory ruling, we find that these rulings provide clarity, for the petitioner, the Commission, and the public, as to the “approved” levels of foreign investment.⁵⁵ Furthermore, as discussed below, we also adopt rules that will reduce the need to file a petition for declaratory ruling in “every instance.”⁵⁶
    
36. 
    As urged by commenters in this proceeding, we are adopting rules that treat foreign investment under section 310(b)(4) and section 310(b)(3) forbearance consistently.⁵⁷ In applying these rules to the class of common carrier licensees subject to section 310(b)(3) forbearance, we take notice of our finding in the First Report and Order that the prior review and approval process informs any Commission decision to grant a petition for declaratory ruling to exceed section 310(b)(3)’s 20 percent limit and allows us to assess any potential harms to consumers.⁵⁸
    
37. 
    For the reasons set forth above, we adopt the NPRM proposal to retain and codify the requirement that common carrier and aeronautical radio station licensees seek and obtain prior Commission approval of their U.S. parents’ foreign ownership under section 310(b)(4), and we codify the same requirement for common carrier licensees subject to section 310(b)(3) forbearance to obtain prior Commission approval before foreign ownership in the subject licensee exceeds 20 percent of its equity interests and/or 20 percent of its voting interests.⁵⁹
    

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