Client Alert

A Formalized Team Telecom: White House Establishes Committee to Review Foreign Ownership or Control in U.S. Telecom Sector

10 Apr 2020

At a time of heightened concern about foreign ownership or control of U.S. telecommunication networks and supply chains, President Trump issued an Executive Order (“EO”) on April 4, 2020 formalizing the interagency Team Telecom process that advises the Federal Communications Commission (“FCC”) on national security and law enforcement implications of granting certain licenses to foreign-owned or -controlled entities. In the same week, Team Telecom unanimously recommended that the FCC revoke China Telecom (Americas) Corp.’s authorizations to provide international telecommunications services to and from the United States, citing among other things a failure to comply with the terms of an existing mitigation agreement with the Department.

Notably, in what is surely a welcome development for companies familiar with the current Team Telecom process, the EO provides greater clarity regarding the timeline under which the executive branch is required to complete its review. The new committee, called the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector (the “Committee”), will be required to complete initial FCC license application reviews within 120 days (beginning on the date on which the applicant’s responses to any questions from the Committee are complete) and if a review identifies potential national security risks that cannot be mitigated by standard measures, a secondary assessment must be completed within an additional 90 days (provided that the applicant timely responds to additional requests for information). The EO requires the Committee to enter into a Memorandum of Understanding (“MOU”) to provide additional information about the process and instructions for affected parties regarding how to submit the required information to the Committee.

FCC Commissioner Ajit Pai issued a statement in support of the EO, applauding the formalized and expedited review process and noting that the FCC will now move forward with concluding its own pending rulemaking related to the FCC’s foreign ownership review process. The Department of Justice, which will chair the new Committee, described the new effort as providing “transparency to the public, certainty and timeliness for the business community, and security for the nation.”

Makeup of the Committee

The newly-formed Committee is comprised of three members: the Attorney General, the Secretary of Defense, and the Secretary of Homeland Security. Shortly after the EO’s release, the Department of Justice (“DOJ”) announced that the Attorney General would be represented by the Justice Department’s National Security Division, through its Foreign Investment Review Section – the same section responsible for reviewing transactions before the Committee on Foreign Investment in the United States (“CFIUS”).

The EO also establishes a lengthy list of “Advisors,” consisting of a number of executive agencies, including the Secretary of State, the Secretary of the Treasury, the Secretary of Commerce, the Director of National Intelligence (“DNI”), as well as several White House offices and “any other Assistant to the President, as the President determines appropriate.” If the Committee’s determination is to deny an application, to grant an application contingent on compliance with non-standard mitigation measures, to modify a license to condition it upon compliance with non-standard mitigation measures, or to revoke a license, then the Committee chair must notify the Advisors and provide them with all available assessments, evaluations, or other analyses regarding such a determination. The Advisors then have the opportunity to indicate whether they oppose the Committee’s recommendation. If no consensus is reached, the Committee members (the Attorney General, Secretary of Defense, Secretary of Homeland Security, and other agency heads or Assistants to the President assigned by the President) determine a recommendation by majority vote, with the Attorney General breaking a tie if necessary. In the latter circumstance, the Chair must also notify the President prior to notifying the FCC, if the recommendation involves the denial of an application, granting an application contingent on non-standard mitigation measures, modifying a license to condition it upon compliance with non-standard mitigation measures, or revoking a license.

Committee’s Mandate

The EO tasks the Committee with reviewing certain applications for FCC licenses that the FCC refers to the Committee for review of national security and law enforcement concerns. The FCC license applications that may be submitted to the Committee include international section 214 authorizations or transfer of such authorizations, submarine cable landing licenses, satellite earth station authorizations, and section 310(b) foreign ownership rulings.

With respect to the applications referred to it by the FCC, the EO tasks the Committee with recommending that the FCC dismiss an application, deny an application, condition the grant of an application upon compliance with mitigation measures, modify a license with a condition of compliance with mitigation measures, or revoke a license. Any recommendation made by the Committee must be based on “a written risk-based analysis, conducted by the Committee Member entity or entities proposing the denial, mitigation measures, modification, revocation, or no action.”

Threat Analysis

To help the Committee conduct its national security and law enforcement reviews of certain FCC applications, the EO requires the DNI to produce a written assessment, for each license or application reviewed by the Committee, of any threat to national security interests of the United States posed by the license or application. The DNI must solicit and incorporate the views of the Intelligence Community, as appropriate, in producing this threat assessment.

Authority to Review and Alter (or Revoke) Existing Licenses

Importantly, the EO gives the Committee the authority to review existing FCC licenses to identify any additional or new risks to national security or law enforcement interests. The Committee can leave such licenses intact, recommend that the FCC modify the licenses to require mitigation measures, or revoke the licenses due to national security concerns.

Last year, following the FCC’s denial of China Mobile International (USA) Inc.’s (“China Mobile USA”) application for a license to provide telecommunications services in the United States, members of Congress and others called on the FCC to revoke the licenses of two other state-owned Chinese telecommunication companies that already had obtained licenses.

And just yesterday, interested executive branch agencies recommended that the FCC revoke and terminate authorizations provided to one such company, China Telecom (Americas) Corp. (“China Telecom”). China Telecom is the U.S. subsidiary of a People’s Republic of China (“PRC”) state-owned telecommunications company. Team Telecom based its recommendation on developments since the authorizations were last transferred in 2007, including China Telecom’s failure to comply with the terms of an existing agreement with the Department of Justice.

Similarities to CFIUS…

The process established by the EO (like Team Telecom’s informal process before it) resembles the CFIUS process for reviewing foreign investments in the United States. Like CFIUS, the Committee is an interagency body comprised of cabinet-level agencies and offices, whose assessment of national security threats is aided by the intelligence community.  The regimented timelines, including the bifurcation of initial review and secondary assessments, are similar to (though slightly longer than) the review and investigation timelines under CFIUS. Unlike CFIUS, however, the Committee only allows the executive branch to provide a recommendation, and the ultimate decision of whether to grant a license rests with the FCC.

…But With a Higher Profile

In the same week that the EO was signed, DOJ issued a press release announcing, on behalf of itself and the Department of Homeland Security and the Department of Defense, that the agencies would not oppose Google LLC’s application to operate a subsea cable system connecting the United States to Taiwan (a segment of the Pacific Light Cable Network System) for a temporary six-month duration. 

Although the announcement appears to be aimed at highlighting the agencies’ pragmatic approach to addressing critical business needs and emphasizes that the agencies were cognizant that the temporary license would address an “immediate need to meet internal demand for capacity between the U.S. and Taiwan,” the announcement also highlights some of the issues that are likely to be of greatest concern to the Committee. In particular, the announcement notes the executive branch’s current view that “a direct cable connection between the United States and Hong Kong would pose an unacceptable risk to the national security and law enforcement interests of the United States.”

Unlike CFIUS, which operates on a confidential basis unless the President blocks a transaction, FCC license determinations are made based on public record. Nevertheless, it is unusual to see DOJ make a public announcement in connection with a Team Telecom decision, and the fact that it has done so here may be an indication of how matters might be handled under the new Executive Order, at least in some cases. As a result, the Committee’s recommendations may present an opportunity for onlookers to analyze the national security concerns that are important to Committee member agencies. Additionally, those who are submitting license applications and expect to have to engage with the Committee should be cognizant of the fact that potential national security and law enforcement concerns may be made public.

Conclusions and Next Steps

The EO promises greater clarity in the review process for FCC license applications, which will give applicants more certainty regarding the timeline for review and a better ability to account for the Committee’s review in connection with potential deal timelines. At the same time, the new procedural requirements will require applicants who may be subject to the Committee’s review to think carefully and in advance about the information they will need to provide to the Committee to avoid delays of their own making.

The establishment of the Committee also creates a more regimented process through which the executive branch can scrutinize national security and law enforcement concerns related to the telecommunications sector. The FCC’s May 2019 denial of China Mobile USA’s application to provide telecommunications services between the United States and foreign destinations is an example of the type of scrutiny we expect to intensify with the creation of the Committee.

Parties operating in the telecommunications industry also should keep an eye out for the promulgation of a MOU, required by the EO to be entered into by the members of the Committee within 90 days of the order’s issuance, as well as the FCC’s rulemaking related to the foreign ownership review process. The MOU and FCC rulemaking are likely to provide additional information on what materials the Committee expects applicants to submit as part of the review process and what standardized mitigation measures might look like.

The Morrison & Foerster LLP National Security team is well suited to handle any foreign investment-related issues that you may encounter. Should you have any questions on the establishment of the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector, do not hesitate to contact any of the attorneys listed as authors of this alert.

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