THE NEW, HUGGABLE FCC

Family gatherings don't often take place in the bland hearing rooms of the Federal Communications Commission, but last week Rupert Murdoch showed up with his wife, daughter and son-in-law and grabbed front-row seats. When his daughter Elisabeth began showing off baby pictures, a grinning Murdoch joked, "Hey now, cut that out."

Suddenly, an investigation that had imperiled Murdoch's ownership of his Fox network -- a probe he once dubbed a "witch-hunt" -- had become a family affair. And the five commissioners did nothing to change the mood, voting unanimously to endorse a resolution that could soon free Murdoch to resume terrorizing the established American networks, as he has done for the past two years. "It was a kiss on the cheek for Murdoch," says an influential Washington communications lawyer.

Since late 1993 the FCC has been examining allegations brought by a branch of the National Association for the Advancement of Colored People, later bolstered by NBC, that Murdoch's 1985 purchase of TV stations now at the core of his Fox network violated a U.S. law that barred alien companies from indirectly controlling or owning more than 25% of a station. The N.A.A.C.P. further charged that Murdoch was guilty of a "lack of candor" -- that he had tried to hide the true ownership structure from the commission.

In the course of the investigation, Murdoch disclosed that his Australia-based News Corp. owned 99% of the equity of the original Fox stations, even though it held, through a chain of intermediary companies, only 24% of the stations' voting stock. In its ruling, the commission found that this structure did indeed violate the law, but it then gave Murdoch a choice: submit a plan to reduce News Corp.'s ownership to 25% -- a paper maneuver that Murdoch has said could cost him more than $200 million in capital-gains taxes -- or convince the commission that waiving the requirement would better serve the public interest. The commission rejected the "lack of candor" charges.

Murdoch says he will take the public-interest route -- he's got until the middle of next month to make his case. Several Washington media lawyers and executives say his success is virtually assured. Indeed, in remarks made at the fcc meeting, three commissioners telegraphed their belief that Murdoch had already succeeded. In launching a fourth U.S. TV network, he satisfied a long-sought commission goal of stirring increased competition among the networks. Commissioner James Quello, a critic of the investigation, stated that he would like to waive the 25% limit immediately. He asked, "Why mess with success?"

But the bonhomie in the room failed to reflect the heated conflict the investigation's findings had ignited among the commission's staff. The investigators considered recommending everything from blanket exoneration to a formal accusation of "lack of candor." They encountered less than complete disclosure, says an FCC official, but failed to find evidence of deliberate deception.