Rupert Murdoch's Other Network

Rupert Murdoch was in his element as he hobnobbed with Washington's power elite at the White House Correspondents' Assn. dinner on Apr. 29. The News Corp. chairman sat with Senator Alfonse M. D'Amato (R-N.Y.) and they chatted a bit about a Federal Communications Commission probe of charges that Murdoch hid his foreign company's huge equity stake in the Fox network. D'Amato didn't need much convincing. "I think [the investigation] is terrible," D'Amato griped. "It's a political vendetta."

The smooth lobbying was vintage Murdoch. His deft courtship of high-powered Republicans helped him launch a fourth network in the first place, and his GOP cronies appear to be bailing him out again--and saving him up to $200 million in capital-gains taxes. In late April, the FCC staff recommended a costly restructuring of News Corp.'s interest in Fox Inc., finding that it violated foreign-ownership restrictions. But insiders say the agency has decided to let Murdoch off the hook anyway, though it has delayed the announcement. "There's no case for any kind of harsh punishment," says one FCC commissioner.

The imbroglio started as a regulatory matter, but has evolved into a political game. The players include House Speaker Newt Gingrich (R-Ga.), House telecommunications subcommittee Chairman Jack Fields (R-Tex.), Senate Commerce Committee Chairman Larry Pressler (R-S.D.), and House Minority Whip David Bonior (D-Mich.).

PULLING STRINGS. The FCC's investigation was triggered in 1994 by complaints from the NAACP and NBC. It picked up steam after the November election. That gave Murdoch and his allies a hook from which to hang their claim that the probes were politically motivated. His New York Post has long been a strident critic of President Clinton, and FCC Chairman Reed E. Hundt has close personal ties to Clinton and Vice-President Al Gore.

Though Hundt denies playing politics, Murdoch has been busy pulling strings. Last fall, he discussed the FCC dispute with the newly elected Gingrich, who had just signed a $4.5 million book deal with Murdoch's HarperCollins publishing unit. Bonior seized on the book contract, forcing Gingrich to give up the huge advance and charging that the media mogul was buying GOP influence.

That's all the Murdoch forces needed to spring into action. Calling Bonior's comments "scurrilous," Fox chief lobbyist Preston Padden helped rally congressional Republicans to his boss's defense. Pressler shot off an irate letter to Hundt on Dec. 23, accusing Democrats of trying to "politicize" the foreign-ownership issue. And Fields vowed in April to make life miserable for the FCC if it unfairly penalizes Murdoch.

The FCC gave Murdoch more fodder when its general counsel advised staffers to stay away from the Fox Christmas party, at the same time approving attendance at NBC's. "The FCC must like sticking pins in a Rupert Murdoch doll," gripes Representative Michael G. Oxley (R-Ohio).

Further undermining the FCC's case against Murdoch, GOP House members on May 3 called for repeal of all foreign-ownership restrictions as part of an overhaul of telecommunications regulations. That would remove the very regulation that lies at the heart of the FCC case.

The matter dates back to 1985, when Murdoch launched Fox. Then-FCC Chairman Mark S. Fowler, a gung-ho advocate of competition, was thrilled that the News Corp. chief wanted to challenge the three existing networks by buying seven Metromedia Co. stations for $2 billion. But Murdoch had a little problem: The law limits foreign ownership to 25% of equity. Murdoch was an Australian at the time, and his company, which would own 99% of the equity, was based in Sydney. So he became a U.S. citizen and devised a complex business structure that critics contend hid News Corp.'s full stake. FCC staffers insist they were duped, a charge Murdoch denies.

Although a majority of the five commissioners believes Murdoch may have violated the rules, they also think the competitive benefits of a fourth network outweigh any infraction, according to agency sources. Some commissioners say they are also miffed by what they see as Hundt's unseemly pressure on the staff to force the restructuring. "The chairman got rolled," says a colleague. That's the risk you take when you tangle with Murdoch.

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