By PAUL SONNE and JOHN JANNARONE

BSkyB said its “strong” track record as a U.K. broadcaster should be the key factor in determining its fitness to hold a broadcasting license, a day after scathing criticism from U.K. lawmakers of News Corp., which has a 39% stake in BSkyB. Photo courtesy: BSkyB

News Corp.

faces a long and murky process as Ofcom, the U.K. communications regulator, decides whether its minority-owned British Sky Broadcasting Group

PLC remains a “fit and proper” holder of a U.K. broadcasting license.

Pressure for regulatory scrutiny of News Corp.’s control of BSkyB has increased with the continuing investigations into the conglomerate’s U.K. newspaper unit, and particularly after a parliamentary panel report this week criticized News Corp. Chief Executive Rupert Murdoch.

The report’s rebuke—inserted despite the opposition of Conservative committee members—said Mr. Murdoch is “not a fit person” to run a global company. The report unanimously found three former News Corp. officials gave misleading statements to Parliament.

News Corp. holds a 39.1% stake in BSkyB. It also has four nonexecutive seats on the board of the pay-TV operator.

BSkyB CEO Jeremy Darroch defended the pay-TV giant on Wednesday, saying Sky’s track record shows it is fit to hold a license. But showing the complexities of the situation, he also tried to distance BSkyB from News Corp., saying the two are “separate companies.”

News Corp. dropped its bid to buy out the remainder of BSkyB during the storm last summer over reporting tactics at its News of the World tabloid, which the company closed. The bid had been News Corp.’s attempt to capitalize on a lucrative holding.

Some investors wonder whether News Corp. should sell the existing stake. As a minority investor, News Corp. can’t tap the pay-TV company’s cash.

News Corp. appears intent on hanging onto its stake, whatever review may be ahead, people familiar with the matter say.

A News Corp. spokesman declined to comment on the company’s plans for BSkyB. News Corp. also owns The Wall Street Journal.

On Wednesday, News Corp. said its board supports Mr. Murdoch unanimously in his role as chairman and CEO, citing “his ongoing performance as Chairman and CEO, and his demonstrated resolve to address the mistakes” mentioned in the parliamentary report.

The license BSkyB holds doesn’t expire, but it can be revoked. Yet there is little precedent to predict how Ofcom’s review with BSkyB will play out.

The 1990 regulation requiring a broadcaster’s owners to be “fit and proper” has been wielded only once in British history: against an adult-entertainment company called Bang Channels Ltd. whose licenses were revoked in late 2010 after airing content deemed too explicit. After Bang didn’t pay Ofcom’s fines and carried out repeated breaches, the regulator revoked its licenses by deeming its directors unfit to operate a broadcaster in Britain.

“As a test, as a precedent, it is of no value,” says Tony Ghee, a partner at London-based law firm Taylor Wessing LLP who specializes in media regulation.

What exactly constitutes a “fit and proper” owner is unclear. The regulator can revoke a broadcasting license if an owner doesn’t meet a loosely defined classification, which takes into account criminality, the propriety of directors and other “relevant misconduct” that isn’t necessarily criminal. Ofcom’s says its duty to monitor whether license holders are fit and proper is “ongoing.”

The process is likely to be long and drawn-out, involving a good deal of back and forth between Ofcom and BSkyB, as well as between the regulator and News Corp.

Paul Herbert, a partner at Goodman Derrick LLP in London who specializes in U.K. media law, said that in the event Ofcom decides News Corp. isn’t “fit and proper,” the regulator is likely to embark on some sort of “process of negotiation and discussion” about concessions News Corp. could make to remedy the situation. (The firms of Messrs. Ghee and Herbert have done work for BSkyB, but the lawyers aren’t consulting on the Ofcom matter.)

Concessions could possibly involve News Corp. selling some or all of its holding in BSkyB or having its directors step down from BSkyB’s board but keeping its shareholding. The regulator could single out specific directors. That, for example, could pressure James Murdoch, News Corp.’s deputy chief operating officer, to step down from the BSkyB board.

James Murdoch is especially unlikely to want to distance News Corp. from the broadcaster, which he helped build. He served as BSkyB’s CEO from 2003 to 2007. He stepped down as chairman of BSkyB last month but remains on the board.

Any decision Ofcom makes could get held up in legal wrangling for months or even years. “Because this is such new territory, it would be ripe for challenge,” Mr. Herbert said. News Corp. or BSkyB could apply for “judicial review,” the process by which U.K. courts review the decisions of public bodies.

“It’s very safe money to say that almost any decision here would be subject to judicial review,” Mr. Herbert said.

Ofcom is known as a “quango,” a quasiautonomous, nongovernmental organization that receives funding and a mission from Parliament but acts independently. The Secretary for Culture, Media and Sport appoints Ofcom’s board, regulated by a code of practice enforced by the Commissioner for Public Appointments. Ofcom’s board appoints the agency’s chief executive.Its chief executive is Ed Richards, a former senior policy adviser to Prime Minister Tony Blair and a former controller of corporate strategy at the British Broadcasting Corp. The regulator is tasked with making decisions independent of the government or British party politics.

In recent weeks, Ofcom has directly contacted News Group Newspapers, News Corp.’s U.K. tabloid newspaper unit, to request documents related to civil phone-hacking cases. Before that, the regulator created a special internal group known as Project Apple to keep regular tabs on developments in the scandal.

Ofcom initially said it would assess whether News Corp. remained a “fit and proper” owner of BSkyB last summer, after the phone-hacking scandal blew up with the revelation that the News of the World hacked the voice mails of a murdered teenage girl. Ofcom said it is considering the report released Tuesday by Parliament’s Culture, Media and Sport Select Committee as part of its evaluation of the broadcasting license.

On Wednesday, BSkyB reported a 19% jump in net profit to £689 million ($1.1 billion) and a 5.1% increase in revenue to £5.08 billion for the nine months ended March 31. The broadcaster added 326,000 new customers in the period, bringing its total subscriber base to 10.5 million. BSkyB is adding customers at a slower pace than in previous years, but it is wooing existing customers to take more services, like high-definition TV.

—Lilly Vitorovich and Martin Peers contributed to this article.

Write to Paul Sonne at paul.sonne@wsj.com and John Jannarone at john.jannarone@wsj.com

March Hedge Funds: Best, Worst, Biggest

Will John Paulson rent a billboard on I-95 promoting his $14 billion hedge fund? Is there a George Soros World Cup in the offing? Probably not. But there are a lot of people in the hedge-fund industry who are excited about the fact that hedge funds can now advertise, sponsor sporting events, and generally reach a wider audience of potential investors.

But, as with everything regulatory, it’s not quite that simple.

The industry’s ability to advertise came about when, earlier this month, President Obama signed the Jumpstart Our Business Startups Act, better known as the JOBS Act. Its main goal was to make it easier for small businesses to raise money, with which they would hopefully create more jobs. Tucked into the act was the lifting of a ban on general advertising and solicitation that hedge funds, with varying degrees of fidelity, had adhered to.

Before you assess how meaningful the new law is, you need to understand a few basics. Hedge funds by rights should be regulated by the Investment Company Act of 1940, which oversees mutual funds and most exchange-traded funds. But in order to avoid the restrictions on redemptions, leverage, and incentive compensation laid out in the 40 Act (as it’s known), hedge funds generally use one of two loopholes known as 3(c)(1) and 3(c)(7). Both exempt hedge funds from most 40 Act requirements but limit their investor audience.

Those considered 3(c)(1) funds allow up to 99 “accredited investors,” defined as someone with a net worth (not counting a home) of at least $1 million or an annual salary of $200,000. Section 3(c)(7) funds are permitted more investors, so long as they’re all “qualified purchasers,” having $5 million in investable assets. (There are many other nuances to these definitions, but this will do for now.) One of the two changes the JOBS Act made was to allow an increase in the maximum number of investors in 3(c)(7) funds to 1,999 from 499. If a hedge fund wants more than 99 accredited investors or 1,999 qualified purchasers, it will have to register with the Securities and Exchange Commission.

THE SECOND, AND MORE provocative, change is the lifting of the advertising ban. Because of the restrictions on whom they can take money from, hedge funds generally were only allowed to let people with whom they had a preexisting, substantive relationship invest; they were prevented from advertising to or soliciting the general public. Some funds took this more seriously than others, requiring passwords to access their Websites and never uttering a word about performance, while others interpreted the rules a bit more loosely. “It’s always been a gray area,” says Mike Seery, a director at financial advisory firm Kinetic Partners.

The ability to reach a wider audience will have a much bigger impact on smaller funds, particularly those with less than $250 million in assets that allow accredited investors. (Most household-name hedge funds permit only qualified purchasers.) Because they’re still appealing to a fairly wealthy crowd, though, advertising likely won’t be too mass-market. Some have speculated we’ll see golf or tennis tournaments sponsored by hedge funds, and an increase in advertising in, ahem, publications that speak to a more sophisticated and wealthy audience.

“A fair number of smaller to mid-sized firms are eager to see less onerous restrictions in marketing to investors,” says Ken Heinz, president of Hedge Fund Research, which compiles and analyzes data on hedge funds. “I don’t expect this to have a meaningful impact on larger funds, especially those with more than $5 billion in assets.”

THERE ARE STILL A fair number of kinks to work out, warns Kevin Scanlan, a partner at the law firm Dechert. Funds generally can accept up to 35 nonaccredited investors, but funds that avail themselves of the relaxed advertising and soliciting rules won’t be allowed any nonaccredited investors. “My take is that at the end of the day, the investor base for these funds won’t be any different,” Scanlan says. “Smaller funds are hungrier for new investors, but at the same time have smaller budgets to spend on advertising.” Also, he points out, most funds haven’t contemplated advertising costs in their fund documents. That means they could end up a manager expense rather than a cost that can be passed on to investors.

Then there’s the issue of the additional rules the SEC needs to write. Now, if hedge funds advertise, they’ll need to prove they took “reasonable steps” to verify any new investors are accredited, says Don Babbitt, a consultant at Kinetic Partners and former SEC attorney.

And the SEC isn’t likely to rush its opinion as to what those reasonable steps are. “Congress said the SEC had 90 days,” Scanlan says. “But given all they have on their plate, I think we’re looking at the end of the year.”

Nothing To See Here

Money funds saw shrinking outflows, with a four-week average of $7.6 billion through Wednesday, according to Lipper. Taxable-bond fund inflows averaged $7.4 billion, and muni funds took in $526 million. Equity funds also saw outflows, averaging $1.8 billion. In March, stock funds’ outflows hit $9.6 billion, up sharply from February’s $1.4 billion, says the Investment Company Institute. Cash was at 3.3% of assets in March.

E-mail:
beverly.goodman@barrons.com

I’m going to go out on a limb and predict that we’ll see the end of the traditional phone company over the course of the next several years.

The reason for that is the pace at which data—e-mails, text messages, Web pages, tweets—is displacing plain old phone calls.

Data usage exceeded voice calls in terms of total cellular network traffic for the first time in December of 2009, according to a report at the time from the wireless equipment maker Ericsson (ticker: ERIC).

That milestone, when sending and receiving data became most of what we do with mobile devices, was the beginning of a transformation with big implications for Verizon Communications (VZ), AT&T (T), Vodafone (VOD), and every other phone company, and with implications for investors.

The transformation happened in conjunction with a general rise in our use of cellphones. As long ago as 2003, some market-research firms suggested that mobile phone calls outstripped wireline phone calls in the U.S. in terms of total minutes of use.

The next step is “4G” wireless. Industry folks know this by the buzz-term LTE. Over the next couple of years, LTE, or long-term evolution, will move cellphone voice calls from traditional cellular networks to the Internet. They will look like just another stream of data packets on the network, along with Web-surfing and tweeting.

Voice is becoming something that is no longer unique, at least from a technical standpoint.

The result is that the phone companies, faced with a reality that calling is a dwindling part of why we use mobile devices, will at some point abandon the practice of charging you by the minute for calls. They’ll sell you a simple data contract.

The 100-year tariff on calls, in other words, will end, as will the phone company as we know it.

The phone companies won’t go away, but they’ll be challenged to make the economics work without the assurance of that monthly tax on your phone calls. Such a state of affairs would probably make the rich even richer: The dominant carriers, Verizon and AT&T in this country, would see their relative positions improve. The smaller ones, such as Sprint-Nextel (S) and Deutsche Telekom‘s (DT) T-Mobile USA, could suffer.

Now, not everyone agrees with me. Craig Mathias, a long-time observer of the telecommunications industry with consulting firm Farpoint Group, tells me it won’t happen.

“I think carriers will be very reluctant to give up that pricing model,” he says, given that it has been a predictable revenue stream, with a predictable set of capital investments for them, based on average minutes of calling.

But Selina Lo, a networking-industry veteran and the CEO of privately held equipment maker Ruckus Wireless, thinks my scenario has some merit.

“At some point, I think one of these operators will eat their young to be a market leader,” she tells me. By that, she means that a phone company will decide to jump to the front of the pack and sacrifice its own voice contract to just sell a data contract.

I’ve been of the opinion it might be Sprint-Nextel in this country, given that the company has struggled to compete with the top two U.S. carriers, AT&T and Verizon, and given that it is the only U.S. carrier with an all-you-can-eat data plan.

Lo opines that it might actually be Verizon. She points to the fact that Verizon is working on intriguing projects with Skype, the Internet-calling outfit that is owned by Microsoft (MSFT).

Here’s the investment angle. There will be lots of money to be made by Ruckus and others helping the carriers to get ready for that eventuality.

As I’ve written in this space before, the cost of carrying increasing amounts of traffic on those new LTE networks is sure to rise, and that means a way must be found to preserve wireless spectrum, which is the carriers’ precious resource.

That has some carriers considering Wi-Fi wireless networking as a way to supplement cellular, a scenario known as Wi-Fi “offload.”

Lo’s company is in the business of selling phone companies Wi-Fi gear meant to work out of doors, on lamp posts and other strategic locations.

In the future, a cellphone user might be walking down the street, talking over Skype, when their handset is shifted from the cellular network to Wi-Fi.

Lo, whose company has done more work of this kind with carriers outside the U.S. that are more aggressive in trying different things, says it’s already happening in some places. In Hong Kong, for instance, at peak hours, upward of 80% of mobile data traffic may travel over Wi-Fi access points.

There are almost two million of these public Wi-Fi hotspots deployed around the world, and that number is expected to roughly triple by 2015, according to a report late last year by the Wireless Broadband Alliance, a trade group that includes Ruckus and other suppliers.

I don’t know when Lo’s company will go public, but in the meantime, it competes with Cisco Systems (CSCO) and Aruba Networks (ARUN) in selling Wi-Fi gear, both of whom are eying the Wi-Fi offload market.

Aruba’s stock, at a price/earnings ratio of 21 times next year’s projected earnings per share, is worth a look.

Other opportunities include service providers. Towerstream (TWER) has for a number of years been selling companies connections between offices using private wireless networks. Towerstream is now adding to its portfolio options for Wi-Fi offload because its technology is applicable.

And Boingo Wireless (WIFI) has made a name for itself selling pay-as-you go Wi-Fi connections in airports and hotels around the world, so it, too, is relevant here.

If all of this seems a bit far-fetched, bear in mind that the most interesting action in the cellular business is not here in the U.S., nor in other developed markets, but in emerging economies. China is the biggest cellular market by number of connections, and India is No. 2, at nearly one billion connections each.

The GSM Association, the international trade body for cellular operators, reports there are three billion cellular connections in Asia Pacific, going to 4.1 billion by 2015, twice the expected rate of growth in Europe and North America.

A lot of what goes on in those markets in coming years won’t come from the standard phone-industry playbook, I’ll bet. But the repercussions will be felt everywhere. 

Heading South

The Nasdaq Composite slid 23 points, or 0.8%, on the week, hurt by the general market slide and bad news from Cisco Systems.

Tiernan Ray can be reached at tiernan.ray@barrons.com or at blogs.barrons.com/techtraderdaily or www.twitter.com/barronstechblog

By LAURA KUSISTO And JENNIFER SMITH

New York law firm Dewey & LeBoeuf LLP, which is heavily in debt, is planning to put the executive floor of its Manhattan headquarters up for sublease, a move that could bring in a couple of million dollars a year, according to a person familiar with the matter.

The firm plans to sublease the 43rd floor, which measures about 43,000 square feet, this person said. The space is the firm’s top floor in the building, and is fitted out with executive offices. Some spots offer a view of Central Park.

In a statement, a spokesman for the firm said Wednesday that “plans to sublease the 43rd floor were made in January of this year as part of the firm’s efforts to reduce costs.”

Dewey, which has been suffering under a heavy debt load and an exodus of partners, is considering a merger that could involve a prearranged bankruptcy filing, which would allow it to resolve debts and other obligations before being bought.

Dewey & LeBoeuf occupies more than 10 floors at 1301 Sixth Avenue. The building housed the headquarters of Dewey Ballantine LLP, an old-line New York firm that merged with LeBoeuf, Lamb, Greene & MacRae LLP in 2007 to create one of the largest law firms in New York.

Dewey leases about 470,000 square feet, or the largest block of space, in the Paramount Group’s 1.8 million-square-foot building, according to CoStar Group Inc., a commercial real-estate database.

The law firm’s lease runs until 2020, according to the person familiar with the matter. Dewey’s asking annual rent is in the $50 a square foot range, according to that person. In other words, a tenant leasing the entire block of space would pay about $2 million a year.

It isn’t unusual for law firms, companies and other types of businesses to sublease small amounts of space as they grow or shrink, according to real-estate brokers.

Law firms often look for new space during recessions when their leases expire and they can get better deals, said John Maher, a broker at CBRE Group Inc. Usually, law firm space is quite easy to sublease because the offices are well laid out, Mr. Maher said.

But Dewey could face challenges renting its space in a leasing market that is currently saturated by other major companies, including Société Générale SA

and UBS AG,

which are planning to put large blocks of space up for sublease, according to people familiar with the matter.

Dewey, which has drawn some $75 million on a $100 million revolving credit line, is days away from a deadline to renegotiate the terms of the loan with a syndicate of banks. It also owes at least $125 million to insurance companies that purchased a private bond the firm floated in 2010, according to people familiar with the matter.

Write to Laura Kusisto at laura.kusisto@wsj.com and Jennifer Smith at jennifer.smith@dowjones.com

A version of this article appeared April 26, 2012, on page B2 in the U.S. edition of The Wall Street Journal, with the headline: Dewey & LeBoeuf Will Try to Sublet New York Office Space.

By ANGUS LOTEN

Small businesses in Oklahoma City may be less frustrated with local regulations than small businesses elsewhere.

Local business owners gave Oklahoma City top marks for “overall regulatory friendliness” – including health and safety, environmental and labor rules, according to the survey of 6,000 small firms by Thumbtack.com, an online marketplace for local services, such as general contracting, plumbers and florists.

The city received a grade of A-plus. By contrast, San Francisco and New York both received Ds, at least from this sample of business owners.

Oklahoma City also ranked high for low hiring costs, lighter licensing regulations and more robust networking programs.

The online poll asked business owners to rank the most and least friendly states and cities for small business in more than a dozen categories.

Dallas-Fort Worth, Tex., came in second for least burdensome regulations, followed by San Antonio and Austin.

Across the board, business owners who responded to the survey were nearly twice as concerned with onerous licensing issues, at state and city levels, than tax rates.

Sacramento, Calif., and Albuquerque, N.M., had the least small-business friendly regulations, both receiving Fs in taxes, among other factors—at least, according to this group.

Among states, Idaho, Texas and South Carolina ranked highest, in the eyes of the small business owners.

However, the ranking excluded Alaska, North Dakota, South Dakota, West Virginia and Wyoming, because those states received fewer than 10 responses apiece in the survey.

The survey also didn’t ask businesses for their views on local crime rates, for instance.

Thumbtack.com says it decided to undertake the survey because most of its customers are small businesses. It worked in partnership with the Ewing Marion Kauffman Foundation to develop the survey.

In fact, here’s a profile in the Wall Street Journal in November on Thumbtack.

Readers, please share your comments. How would you rank your city and state in terms of small-business regulations?