FCC Offers Murdoch a Way Out on Broadcast Ownership Rule

The Federal Communications Commission voted Thursday to allow media mogul Rupert Murdoch to avert a costly restructuring of his television empire if he can show that the current ownership of his eight Fox TV stations is in the public interest.

The decision underscored federal officials’ increasing ambivalence toward laws that limit foreign ownership of U.S. communications firms--laws that many now see as barriers to the creation of a global electronic village.

The unanimous vote capped a controversal 18-month investigation of allegations that Murdoch’s Australia-based media company, News Corp. Ltd., had run afoul of a federal law prohibiting foreign firms from owning more than 25% of a U.S. broadcasting company.

Although the FCC approved Murdoch’s TV station purchases in 1985, FCC General Counsel William Kennard says it wasn’t until a year ago that the agency learned that News Corp. owned 99% of the equity in the stations. The FCC ruled Thursday that the ownership arrangement did indeed violate the law, but invited Murdoch to apply for a waiver--and most of those involved expect the waiver to be granted. The FCC had been sharply divided over how to resolve the issue, with the staff recommending that Murdoch be forced to undertake a costly restructuring to satisfy the law.

An emotional and misty-eyed Murdoch, seated in the standing-room-only audience at the FCC with his wife, daughter and son-in-law, was given 45 days to comply with the law or seek a waiver on the grounds that the ownership arrangement is in the public interest.

“We believe this should not be necessary . . . (but) the bottom line is we are very happy about most of it,” Murdoch told reporters after the meeting.

The foreign ownership restrictions were put in place more than half a century ago in response to wartime fears of enemy influence. While firms like Sony Corp. of Japan, Philips of the Netherlands, and Bertelsmann of Germany have in recent years gobbled up big chunks of the U.S. entertainment industry with headline-grabbing purchases of movie studios, record labels and publishing houses, electronic media has largely remained off-limits because of two federal laws.

The first imposes an absolute 20% limit on direct ownership of a U.S. broadcast outlet by a foreign investor. The second law, at issue in the Murdoch case, applies a flexible 25% limit to the amount a foreigner may invest in a U.S. subsidiary that controls an American broadcast station. Because phone networks use microwave broadcasts to carry calls, they are subject to the rules as well. Although the FCC has discretion to raise the 25% ceiling, it has tradi tionally allowed few exceptions.

But the Fox decision, together with other recent FCC rulings and congressional proposals to change the law, signals that the foreign ownership rules are already less of a barrier then they have been in the past--and will likely be relaxed further. That could broaden the pool of prospective buyers for key U.S. media properties--notably CBS Television.

“A foreign owner still has to apply for a license, but this is positive because it indicates that if foreign owners act properly and in the public interest, the spirit and not the letter of the law will govern,” said Strauss Zelnick, chief executive of BMG Entertainment North America, a unit of media giant Bertelsmann, which is considered a potential investor in the U.S. television business.

Just last summer, the FCC allowed British Telecommunications to purchase a 28% interest in MCI Communications Corp. The FCC has also allowed a Canadian firm to acquire a 60% interest in a U.S. telephone firm, according to Scott Harris, head of the FCC’s international bureau.

There is activity on several fronts to rewrite the foreign ownership rules. In January, Rep. Michael G. Oxley (R-Ohio), introduced a bill that would repeal one of the laws altogether, saying it “has no place in the telecommunications age.” Oxley’s bill is slated to be taken up in the coming weeks as the House considers a broad telecommunications reform bill.

The Senate communications subcommittee has already passed a measure that would lift current restrictions in favor of a reciprocity rule that would allow unlimited foreign investment in U.S. telephone companies if the foreign investor’s home country permitted unlimited U.S. investment. That measure awaits a full Senate vote, perhaps as early as this month. Meanwhile, the FCC is considering its own overhaul of foreign ownership rules to help pry open foreign telecommunications markets.

*

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