A thriving industry will see its share of buying and selling, not always in products and services but also within itself in the form of equity transfers. Whether it is consolidation, divestiture or just some plain internal churning, a company holding U.S. Federal Communications Commission (FCC) authorizations must involve the FCC when assignments and transfers of control take place.

Assignments and Transfers of Control

In some transactions, it is necessary for FCC authorizations (e.g. licenses) to change hands; in other occasions, the FCC authorizations need to remain with the original holder, but the holder itself undergoes changes. The difference is between an assignment and a transfer of control.

In an assignment, which is a transfer of rights, a license is passed from one entity to another. After the assignment, the license will no longer be held by the entity that originally held the license. Selling a customer base is considered a sale of assets treated as an assignment.

In contrast, in a transfer of control, the license remains with the same entity, but there is a change in the entity that controls the license holder. For instance, a change of ownership from less than 50 percent to more than 50 percent always is considered a transfer of control.

Sometimes the FCC needs to be involved before an assignment or transfer of control is consummated; other times the FCC just needs to be notified that the transaction took place. As a rule of thumb, in assignments and transfers of control, FCC involvement is virtually always required.

Substantial and Non-Substantial Transfers

In a "substantial transfer," prior FCC consent always is required. At the heart of the analysis is the concept of "control," which means the actual influence in whatever manner exercised and is not limited to stock ownership. Control also can be indirect, as through intervening subsidiaries. Furthermore, the transfer of control also can be involuntary. Most importantly, because the issue of control is fact-based, it must be determined on a case-by-case basis.

In "non-substantial transfers," where there is no change in the actual controlling party, the degree of FCC involvement depends on the type of license at issue. Earth station licenses require prior FCC consent, while 214 licenses require only an FCC notification within 30 days of consummation of the transaction. The FCC has identified some situations that qualify as a non-substantial transfer. These non-substantial transfers, also called pro-forma, include:

• Transfers from an individual to a corporation owned by the same individual

• Transfers of equity from a retiring shareholder

• Corporate reorganization (including incorporation in a different state)

• Transfers from a corporation to a wholly owned subsidiary and vice versa

• Transfers between corporations of the same owner

How Long Does FCC Consent Take?

The length of time for the FCC to grant consent to an assignment or transfer of control can vary from weeks to months. A lot depends on how the current level of foreign ownership will be affected. For requests where foreign ownership will exceed the percentages permitted by statute, one should allocate a longer time to obtain FCC consent.

What to Do?

Interacting with the FCC often is the last thing in people’s minds, especially when critical business discussions are underway that will involve shifts in company control. Sometimes dealing with the FCC is overlooked altogether. Ultimately, whether the transaction can be qualified as an assignment or a transfer of control, and whether the transaction qualifies as a substantial or non-substantial transfer, the FCC will need to be involved. Therefore, it is essential to keep regulatory counsel apprised of transactions affecting the status quo in ownership structure.