In a 5-0 vote, the FCC held that Australia-based News Corp.'s 99% Fox stake is indeed in technical violation of a law that bars foreigners from owning more than 25% of a U.S. broadcast station.
But the FCC rejected allegations that Mr. Murdoch and the company had tried to deceive the commission about Fox's ownership structure to get around the law.
The commission also announced that Fox would have the opportunity to make a case for why it would be in the public interest to permit the network to continue exceeding the 25% benchmark permanently.
Fox officials said they are planning to present their public-interest case to the FCC this week.
And in an interview, Mr. Murdoch predicted that the regulatory cloud that has been hovering over him would be lifted completely within six weeks, and that all the commissioners would vote in support of the waiver.
At the FCC hearing May 4, all the commissioners-with the exception of Chairman Reed Hundt-appeared sympathetic to Fox on the issue, and one-Jim Quello-made it clear that he was prepared to grant Fox the waiver on the spot.
But some critics blasted the FCC, contending that it should, at the very least, have followed through on widely publicized threats to make News Corp. slash its Fox stake back to the required 25%, a move Fox contends could cost it hundreds of millions of dollars.
Sources said the FCC's turnabout comes as a major repudiation for Mr. Hundt.
The decision also comes as a rebuff to the National Association for the Advancement of Colored People and NBC, which had been leading the charge against Fox.
NBC dropped its challenge recently, after striking a deal assuring it carriage on Mr. Murdoch's Asian satellite.
The NAACP's essential allegation had been that Fox lied about its ownership structure when Mr. Murdoch applied to buy his first group of U.S. stations in 1985. But the FCC held that it was unclear what reporting obligations licensees faced at that time.
Indeed, in the FCC report released last week, the agency conceded that it had not made clear that equity contributions could be critical for companies like Fox until its Univision case in 1992.
Fox has long argued that its structure is legal because Mr. Murdoch, a U.S. citizen, owns 76% of Fox's voting stock.
In their public-interest filing this week, Fox officials said they will stress the contributions they have made as the nation's fourth network. Mr. Halonen is Washington bureau chief at Electronic Media.