FCC Strengthens Foreign Ownership Disclosure Requirements for Providers Holding International Section 214 Authorizations

Taking another step to further regulate foreign participation in the U.S. telecommunications marketplace, on Thursday, April 20, 2023, the Federal Communications Commission ("FCC" or "Commission") adopted an Order and Notice of Proposed Rulemaking ("NPRM") that was released on April 25, 2023, to expand disclosure requirements for telecommunications companies holding international section 214 authorizations ("214 Authorizations"). Notably, the Commission's action is focused primarily on international 214 authorizations and only seeks to modify domestic 214 authorizations to the extent necessary to align with the potential new rules for international authorizations.

The Order adopts a one-time reporting requirement for all carriers holding a 214 Authorization to disclose all foreign persons or entities with a 10 percent or greater direct or indirect voting or equity interest or risk cancellation of their 214 Authorization. Carriers will also be required to certify the accuracy of these disclosures which will require "appropriate due diligence" to ensure the information reported is reliable. Failure to make the required disclosures risks potential cancellation of the carrier's 214 Authorization.

Further, the NPRM proposes to "comprehensively change" the FCC's current international section 214 framework by:

• Requiring carriers to renew their 214 Authorization every 10 years or, in the event the 10-year-renewal proposal is not adopted, update their information periodically;
• Modifying the current 10 percent ownership reporting threshold to require disclosure of any person or entity holding a 5 percent or greater direct or indirect voting or equity interest in the international section 214 carrier, or, in the alternative, only the disclosure of foreign ownership at the 5 percent level by entities, individuals, and government organizations from "foreign adversary countries," as defined further below;
• Expanding the criteria for the FCC to refer an international section 214 application to the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector (commonly referred to as "Team Telecom") and the Executive Branch;
• Supplementing the existing international section 214 application process to require the disclosure of additional information, including current and expected future services, anticipated types of customers, and the geographic markets in the U.S. where the carrier plans to offer service;
• Collecting from current international section 214 carriers detailed information on critical infrastructure used to provide service crossing the U.S.-Mexico and U.S. Canada borders (referred to as "Cross Border Facilities"); and
• Modifying Part 63 of the FCC's rules to limit carriers to a single 214 Authorization, impose other requirements related to the initiation and discontinuation of international section 214
  service, and require carriers to provide updated information to the FCC every three years.

Comments and reply comments on the NPRM's proposals will be due 30 and 60 days, respectively, after the date of publication in the Federal Register.

New Obligation to Make One-Time Disclosure of Foreign Ownership for All Providers Holding an International Section 214 Authorization

Under this new rule all carriers holding a 214 Authorization must identify their 10 percent or greater direct or indirect foreign interest holders that hold such equity and/or voting interests (i.e., reportable foreign ownership) as of 30 days prior to the filing deadline. The deadline will be established once the Office of Management and Budget ("OMB") completes its review and the effective date is published in the Federal Register. Additionally, the Commission will require each carrier to certify as to the accuracy of the ownership information filed with the FCC, which will require each carrier to conduct appropriate due diligence prior to filing. In the NPRM, the FCC also proposes a new rule that would cancel the 214 Authorizations of carriers that fail to make this filing and impose forfeitures or other measures where a carrier fails to respond in a timely or complete manner.

The new disclosure rule will require carriers to disclose whether any reportable foreign ownership includes entities or individuals that are a government organization or citizen of a "foreign adversary" country, as defined in the Department of Commerce's rule 15 C.F.R. § 7.4, such as China, Cuba, Iran, North Korea, Russia, and/or the Maduro Regime. Even when there are no reportable foreign adversaries, the carrier must still identify all 10 percent or greater direct or indirect foreign interest holders (entities or individuals), whether any interest holder has dual or more citizenships, and the countries where citizenship is held. Failure to respond to this new disclosure requirement could result in fines, penalties, and/or the revocation of the carrier's 214 Authorization.

Because some carriers hold several 214 Authorizations, often without a need for them, the FCC notes that such carriers may surrender their additional 214 Authorizations prior to the new reporting deadline. Doing so will eliminate any foreign ownership reporting requirement for those authorizations.

Proposed Renewal or Periodic Review Requirements

The FCC proposes and seeks comment on two potential options with respect to its reassessment of a carrier's 214 Authorization. The first option – and the FCC's preference – is a 10-year renewal framework pursuant to which carriers would be required to prove that their 214 Authorization serves the public interest consistent with the standard applied today for 214 Authorization modifications, assignments, and transfers of control. The second option is a "periodic" review framework pursuant to which carriers would be required to submit similar information every three years for the same purpose. Under both options, the FCC would have the ability to revoke a 214 Authorization if the carrier failed to meet the public interest standard. The proposed renewal/periodic review framework would apply to all 214 Authorization holders, including those without foreign ownership and those that were granted international section 214 authority prior to the effective date of any renewal or review rules the FCC adopts. The Commission would prioritize the review of carriers with reportable foreign ownership as it believes foreign ownership in the U.S. telecommunications sector "implicates national security, law enforcement, foreign policy, and/or trade policy considerations."

Proposed Renewal Process and Implementation

The FCC suggests prioritizing the renewal of 214 Authorizations based on a variety of factors, including the carrier's reportable foreign ownership, the time elapsed since the FCC's previous review of the carrier, and whether the 214 Authorization is conditioned on a mitigation agreement. Using these priorities, the FCC proposes five different prioritized groups for renewal consideration:

• Group 1: All carriers with reportable foreign ownership, including from a foreign adversary country, with no existing mitigation agreement, and that the FCC has not reviewed in the last 10 years, or that otherwise raise any national security, law enforcement, foreign policy, and/or trade policy concerns;
• Group 2: All carriers with reportable foreign ownership, including from a foreign adversary country, that have an existing mitigation agreement, and that the FCC has not reviewed in the last 10 years;
• Group 3: All carriers with reportable foreign ownership, including from a foreign adversary country, with no existing mitigation agreement, and that the FCC has reviewed less than 10 years ago;
• Group 4: All carriers with reportable foreign ownership, including from a foreign adversary country, that have an existing mitigation agreement, and that the FCC has reviewed less than 10 years ago; and
• Group 5: All carriers with no reportable foreign ownership and that do not otherwise raise other national security, law enforcement, foreign policy, or trade policy concerns.

Additionally, the FCC seeks comment on a proposal to refer applications to Team Telecom and the Executive Branch if the applicant reveals that it: (1) uses or will use a foreign-owned managed network service provider ("MNSP"); (2) has Cross Border Facilities; or (3) uses equipment or services identified on the FCC's "Covered List" of equipment and services pursuant to the Secure and Trusted Communications Networks Act. These proposed referrals would be subject to the same timeframes associated with Team Telecom reviews under Executive Order 13913. The Commission also seeks comment on whether there are categories of renewal applications where the agency can leverage prior national security determinations involving the carrier such that Team Telecom/Executive Branch referral would not be required.

Proposed Renewal/Periodic Review Application Requirements

As a baseline, the FCC proposes to apply the same requirements applicable to initial applications for international section 214 authority to renewal applications or the periodic review framework (whichever option the FCC adopts). These requirements include, among other things, information and attestations concerning an applicant's contact information, the specific type of authority the applicant seeks, interlocking directorates, any foreign carrier affiliations, any competition issues, and a certification that the applicant is not subject to a denial of federal benefits pursuant to Section 5301 of the Anti-Drug Abuse Act of 1988. Additionally, the Commission proposes to apply to renewal applications the requirements that were adopted in the FCC's recent Executive Branch Process Reform Order, which include various certifications, a calculation of the indirect voting and equity interests in the carrier, an ownership diagram illustrating the applicant's vertical ownership structure, and responses to the standard Team Telecom "triage questions" that applicants must currently respond to if a foreign individual or entity will hold a 10 percent or greater direct or indirect voting or equity interest in the carrier.

Proposed New Application Requirements for All International Section 214 Applicants/Carriers

In addition to proposing application requirements related to the renewal/periodic review process, the FCC also proposes several requirements for new international section 214 applicants.

Perhaps of greatest significance, the FCC proposes adopting a lower disclosable interest reporting threshold pursuant to which applicants would be required to identify all persons or entities holding a 5 percent or greater direct or indirect voting or equity interest in the prospective 214 Authorization holder or, in the alternative, identify only foreign ownership at the 5 percent level by entities, individuals, and government organizations from "foreign adversary countries." Recognizing the burden either requirement will place on carriers, the Commission also seeks comment on certain regulations to insulate such disclosures, including treating the disclosures of less than 10 percent reportable foreign ownership as presumptively confidential and only requiring such disclosures to be made in responses to Team Telecom and not filed directly with the Commission. The applicant would also be required to provide information about its current and expected future services, anticipated types of customers, and the geographic markets in the U.S. where it plans to offer service pursuant to its international section 214 authority.

The FCC also seeks comment on whether all applicants, including those without foreign ownership, should have to identify if they use foreign-owned MNSPs and if an MNSP should be considered "foreign-owned" only if it is majority-owned or controlled by one or more non-U.S. individuals or entities. Additionally, the Commission proposes that all applicants be required to certify in their applications that they do not use equipment or services identified on the "Covered List," and that they will not purchase or use equipment made by "Covered List" entities. Applicants would also need to certify compliance with FCC rules and regulations and other laws and disclose any pending FCC investigations and any "adjudicated findings of non-FCC misconduct."

Further, with respect to carriers currently holding a 214 Authorization, the FCC proposes to collect detailed information on Cross Border Facilities, including the location, ownership, and type of facilities used to provide service. This information would be shared with relevant Executive Branch agencies, including Team Telecom, and carriers would be required to notify the FCC of any new Cross Border Facility within 30 days of commencing service.

Other Proposed Changes to Part 63 of the FCC's Rules

The FCC also proposes additional substantive changes to existing regulations that pertain to 214 Authorizations, which can be found in Part 63 of the FCC's rules. If adopted, these changes would, among other things:

• Limit carriers to holding only one 214 Authorization, with some limited exceptions.
• Require carriers to commence service within one year of receiving the grant of their international section 214 authority and then file a notification with the FCC and surrender their 214 Authorization when/if they discontinue service permanently.
• Require carriers to periodically provide the FCC with updated ownership information on all 5 percent or greater disclosable interest holders (or, if not adopted, all 10 percent or greater disclosable interest holders), Cross Border Facilities information, service and geographic market descriptions, locations and other information regarding their data storage facilities, and certifications following the grant of a renewal application, until the next renewal application is granted. Such updates would be required every three years following the grant of a renewal application, until the next grant of a renewal application.

Takeaways

The Order and rules proposed in the NPRM are extensive and are likely to impose significant information collection and reporting responsibilities on carriers holding or applying for 214 Authorizations and those persons and entities that financially invest in those carriers. Please contact us if you have any questions about these new rules and proposals.