Header graphic for print
Global Media and Communications Watch The International Legal Blog for the Tech, Media and Telecoms Industry
Posted in Policy & Regulation, Telecoms & Broadband Michele FarquharAri FitzgeraldTrey HanburyArpan Sura

Executive Order Creates Committee to Replace “Team Telecom” Review of Foreign Telecom Investments

Recent developments have positioned the Executive Branch to exert greater influence over the U.S. telecommunications sector. On April 4, 2020, President Donald Trump issued an Executive Order creating a new process for Executive Branch review of telecommunications-related applications and licenses involving foreign participation. The new procedures replace the review currently performed by an informal, multiagency group known as “Team Telecom.” But the mandate includes several novel features that expand the reach and scope of national security review beyond what Team Telecom could accomplish.

The Executive Order authorizes the newly formed Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector (Committee) to conduct a national security and law enforcement review of any applications and licenses that pose risks to national security and law enforcement interests of the United States.  Federal Communications Commission (FCC) Chairman Ajit Pai and Commissioner Michael O’Rielly praised the Executive Order, and Commissioner Brendan Carr urged the Committee to investigate every carrier owned by the Chinese government that now connects to networks in the United States.

The focus on China, coupled with the ability to review existing licenses, will make China Telecom and China Unicom, two Chinese-controlled holders of FCC authorizations to provide international telecommunications services, more vulnerable. In fact, on April 9, the Department of Justice announced that Executive Branch agencies with national security expertise unanimously recommended that the FCC revoke and terminate China Telecom’s authority to provide international telecommunications services in the U.S.

The focus on China may also put small rural carriers with Huawei equipment in their networks in the Committee’s crosshairs, even though they do not have foreign investors and have not engaged in transactions that bring them within the traditional Team Telecom review process. The Committee might claim authority to condition their licenses on the removal of Huawei equipment, possibly at the small rural carriers’ expense.

The Executive Order also addresses longstanding industry concerns about Team Telecom by providing structure and increased transparency to a review process that has previously been criticized as opaque and one-sided. Clearly defined membership and timelines, written analysis, and standardized questions and mitigation measures should give telecommunications providers and their non-U.S. investors more clarity and predictability. The new procedures and timelines, however, give the Executive Branch agencies a great deal of discretion to determine when they have received all of the information they need to make an assessment. They also still permit a lengthy and potentially burdensome review.

The FCC will likely move quickly to adopt rules to implement the Executive Order, most likely by releasing a public notice seeking comment on how best to implement the Executive Order in an extant proceeding initiated in 2016 to reform the Team Telecom process.

Background

For many years, the FCC has delegated the national security and law enforcement aspects of its “public interest” review to an informal, multi-agency committee known as Team Telecom, which includes the Department of Justice, Federal Bureau of Investigation, Department of Defense, and Department of Homeland Security.

As we have noted in the past, the Team Telecom process has chilled foreign investment in the U.S. telecommunications sector due to the lack of meaningful oversight or procedural constraints. As an informal committee established and deputized by the FCC, Team Telecom had no statutory or other legal basis, governing rules, or oversight. Despite the lack of formal authority, Team Telecom often had the final word on licensing decisions involving companies with foreign investors because the FCC deferred to Team Telecom’s analysis and recommendations. Without established rules, the Team Telecom review process had no clear structure, timeline, or scope. Team Telecom took on average 250 days to clear applications, three or four times longer than the timeline for applications that did not require Team Telecom review.

In response to concerns about the Team Telecom process, the FCC published a Notice of Proposed Rulemaking (NPRM) in 2016 to consider reforms to the process. However, that process stalled after the comment period closed, likely due to the objections of the law-enforcement and national security agencies. Heightened concerns about the security of U.S. critical infrastructure and Chinese government influence and control over Chinese telecommunications companies has brought renewed attention on national security review of foreign ownership transactions, as has been evident in the FCC’s recent actions against Huawei and China Mobile.

Highlights of Executive Order

  • Participants: The Committee will be comprised of the Secretary of Defense, Secretary of Homeland Security, and Attorney General who serves as chair.

The Executive Order also designates committee advisors, including the Secretaries of State, Treasury, and Commerce, the Directors of National Intelligence and the Office of Management and Budget, the U.S. Trade Representative, the General Services Administrator, the Assistants to the President for National Security Affairs and Economic Policy, the Director of the Office of Science and Technology Policy, and the Chair of the Council of Economic Advisers.

  • Responsibilities: The Committee’s mandates include: (1) reviewing applications and licenses for risks to national security and law enforcement interests, and (2) responding to risks by recommending that the FCC dismiss an application, deny an application, conditionally grant an application or modify a license based on compliance with mitigation measures, or revoke a license.
  • Implementation: Within 90 days, the Committee and Director of National Intelligence must enter a Memorandum of Understanding (MOU) with each other establishing a plan to implement and execute the Executive Order. The MOU must outline all necessary procedures, including questions and information requests for applicants and licensees, standard mitigation measures, and governance processes for the Committee. The Attorney General, as chair, must report annually to the President on implementation of the Executive Order and recommendations for relevant policy, administrative, or legislative proposals.
  • Review of Applications and Licenses
    • Application Review: Following referral of an application by the FCC, the Committee has 120 days from the date the chair determines the applicant’s responses to any questions and information requests are complete to make an initial determination about the application.

The initial determination may find that (1) granting the application poses no current risk to national security or law enforcement interests; (2) standard mitigation measures recommended by the Committee can address any national security or law enforcement risks raised by the application; or (3) a secondary assessment is needed because the risks cannot be allayed by standard mitigation measures.

If a secondary assessment is warranted, the Committee must complete this additional review within 90 days.

    • License Review: The Committee may choose to review existing licenses for new or additional risks to U.S. national security or law enforcement interests by majority vote of the Committee.
    • Threat Analysis: The Director of National Intelligence must provide a written threat analysis for each application and license reviewed by the Committee, in consultation with the intelligence community.
  • Committee Recommendations:
    • New Applications: After concluding its review of an application, the Committee must advise the FCC of its recommendation. The Committee may advise that (1) it has no recommendation for the FCC or objection to the FCC granting a license; (2) the FCC should only grant the license contingent upon compliance with mitigation measures; or (3) the FCC should deny the license application.
    • Existing Licenses: After concluding its review, the Committee must advise the FCC as to whether it recommends: (1) taking no action regarding the license; (2) modifying the license to require compliance with mitigation measures; or (3) revoking the license.
    • Notice and Consensus: Recommendations that the FCC deny or revoke a license, or condition a new license or modify an existing license to require compliance with non-standard mitigation measures, require notification to the committee advisors with the goal of achieving consensus. All recommendations must be based on a written, risk-based analysis, which can be provided to the advisors. The Committee must also notify the President.
  • Risk Mitigation and Monitoring: The Committee is responsible for monitoring compliance with mitigation measures imposed as conditions by the FCC on recommendation of the Committee, reporting material non-compliance to the Committee and the FCC, and recommending corrective actions.

* * *

The new Committee for the Assessment of Foreign Participation in the United States is charged with eliminating foreign participation in the telecom sector that might pose a national security threat to the U.S. In addition to the power of its predecessor (Team Telecom) to review applications, the Committee can also ask the FCC to revoke existing licenses following a vote to do so by a majority of Committee members. The Committee’s broad mandate to examine any form of foreign participation that might pose a national security or law enforcement threat combined with the novel ability to scrutinize licenses of companies that are not seeking any new authority from the FCC could allow the group to exercise considerable additional leverage over the industry.