FCC Staff Urges That Murdoch Be Ordered to Restructure Fox : Media: In a blow to Aussie-born entrepreneur, it recommends that his News Corp. cut interest in TV network to 25%.

In a move that could saddle media mogul Rupert Murdoch with a huge tax liability and stifle foreign investment in U.S. broadcasting, FCC staff members have recommended that federal regulators consider ordering the Australian-born entrepreneur to restructure his Fox television network to comply with federal foreign-ownership laws.

Under a controversial proposal submitted to the five-member Federal Communications Commission late Wednesday, the FCC’s Mass Media Bureau staff has recommended that Murdoch’s Australian holding company, News Corp., reduce its current 99% equity interest in the Fox TV network to about 25%, FCC and industry sources said.

By restructuring, Murdoch would be allowed to keep his Fox television stations, which air such shows as “The Simpsons,” “Melrose Place” and “Beverly Hills 90210.”

“Getting (News) ownership below 25% would have significant tax consequences” for Murdoch, said a lawyer knowledgeable about the 64-year-old billionaire’s finances. The lawyer estimated that Murdoch’s tax liability could amount to tens of millions of dollars.

A Fox official reached late Thursday said: “This is pure speculation about (an FCC) staff recommendation, but if it were true, it’s outrageous. We would be surprised if the commission would follow such a recommendation, but if they did, we would fight it at every level.”

Though the staff recommendations apparently have the support of FCC Chairman Reed Hundt, they are likely to generate bitter and lengthy debate among commissioners, who are said to be divided over what sanctions Murdoch should face for allegedly running afoul of federal law prohibiting foreign companies from owning U.S. broadcast stations.

The recommendations are also likely to reverberate in Congress, which has been considering legislation that would relax such restrictions.

Lawmakers’ efforts erupted into controversy earlier this year when House Speaker Newt Gingrich disclosed that a publishing firm owned by Murdoch had given him a $4.5-million book contract. To quell the controversy, Gingrich subsequently chose to receive book royalties as they are earned rather than take the huge advance.

If adopted, the recommendations would be a huge setback for Murdoch, a self-made media tycoon whose legal problems with the FCC seemed to brighten a few months ago when the rival NBC network abandoned its own high-profile attack on Fox’s ownership structure.

NBC had been championing a complaint against Murdoch originally filed by Washington lawyer David Honig on behalf of the NAACP. The civil rights organization argued that foreign investments greater than allowed by federal law made it tough for minorities to compete for valuable broadcast stations. Honig could not be reached Thursday.

The FCC staff recommendations cap a lengthy agency investigation that has focused on who owns six big-city television stations purchased in the mid-1980s as the core of the fledgling Fox network: Murdoch, a naturalized U.S. citizen, or News Corp., the Australian company he runs.

The FCC was aiming to resolve the matter today. But several commissioners indicated they wanted more time to review the matter.

Republican Andrew Barrett is the only commissioner to have opposed Murdoch in the past. By contrast, Democrat James H. Quello has been considered one of his supporters, arguing that a fourth TV network, even one with sizable foreign ownership, is good public policy.

The positions of the two newest commissioners, Democrat Susan Ness and Republican Rachelle Chong, are unknown.

But the prospect that Murdoch may have to restructure his company sent shivers through Wall Street, as analysts mulled the impact of such an action.

“In an environment that is moving in a deregulatory direction--and with a government policy that is encouraging more foreign investment--there would be a chilling effect if the FCC took such drastic action,” said Edward Hatch, a media analyst at UBS Securities in New York.

Federal law currently limits foreign investment in U.S. communications companies to between 20% and 25%, although the FCC has the discretion to waive those strictures.

The foreign-ownership law was passed in response to concern that foreign owners might use U.S. broadcast outlets as propaganda platforms.

Recently, however, the FCC has proposed scrapping the 60-year-old statute and has signaled its intentions to establish a freer global market in communications.

* Times staff writer Sallie Hofmeister in Los Angeles contributed to this report.