The Executive Order is one of many actions that reflect heightened scrutiny of China's participation in U.S. telecommunications and technology sectors
Last month, President Trump issued an Executive Order on Establishing the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector (Executive Order). The Executive Order transforms an existing informal interagency working group, known as "Team Telecom," into a formal Executive Branch committee that will continue to review national security, law enforcement, and public safety risks associated with foreign participation in the U.S. telecommunications services sector.
The Committee will both assist the Federal Communications Commission (FCC) in its review of telecom license applications where foreign persons have reportable ownership interests, and reevaluate risks associated with foreign companies that already hold such licenses. Further, the Committee will recommend how the FCC should respond to license applications including whether to grant, reject, or condition the grant of new license requests, and will make recommendations regarding modification or revocation of current licenses based on updated evaluations of the risks posed by such authorizations.
While the Executive Order describes the broad outlines of the new Committee's functions and duties, important details remain to be worked out among the Committee's members and through a rulemaking proceeding at the FCC, in which interested parties may participate.
The Executive Order comes on the heels of a number of recent actions by the President, Congress, the FCC, and other federal agencies to scrutinize and restrict Chinese participation in telecommunications, technology, and other strategic sectors that are viewed as critical to U.S. national security and law enforcement interests. These include:
- Newly issued regulations under the Foreign Investment Risk Review Modernization Act (FIRRMA), which broaden the authority of Team Telecom's companion committee, the Committee on Foreign Investment in the United States (CFIUS), to review, modify and sometimes block foreign investments and real estate transactions in the U.S.;
- Recent actions by Congress, the FCC, and other agencies to address national security concerns pertaining to the use of Chinese equipment in U.S. telecom networks, interconnection of U.S. networks with Chinese carriers, and the race for world leadership in the burgeoning 5G marketplace, including particularly the enactment of legislation and issuance of regulations to exclude various Chinese companies such as Huawei Technologies Co., Ltd., and ZTE Corporation from the U.S. telecommunications sector;
- The President's issuance of a May 2019 Executive Order intended to protect the information and communications technology and services supply chain, and critical infrastructure and the digital economy from threats posed by so-called "foreign adversaries" (see also here);
- U.S. law enforcement actions aimed at alleged Chinese technology theft and cyberespionage (see, e.g., U.S. v. Huawei Technologies Co., Ltd., Case No. 18-457); and
- Current proceedings brought by the FCC, Department of Justice, and Department of Defense aimed at China Telecom, Pacific Networks, ComNet, and China Unicom, which are alleged to be owned or controlled by the government of the Peoples Republic of China (see also here).
The Executive Order and formalization of Team Telecom's operations appear intended to strengthen and streamline the FCC's national security review process. However, the degree to which they actually will have that effect is clouded by ambiguities in the Executive Order's terms and the need for the Committee's constituent members to issue a Memorandum of Understanding, and the FCC to issue implementing regulations, which will better define the Committee's focus and procedures and their interaction with FCC licensing processes.
Team Telecom History
Team Telecom, the Committee's predecessor, has operated informally for more than 20 years. The group initially comprised the Department of Justice (including the FBI) and the Department of Defense, with the later addition of the Department of Homeland Security.
Team Telecom has worked with the FCC to evaluate the law enforcement, national security, public safety, and international trade implications of applications by foreign persons for certain types of telecom and broadcast facilities and services authorizations, including applications for:
- International telecommunications services under Section 214 of the Communications Act of 1934 (the Act);
- Broadcast, common carrier wireless, and aeronautical radio station licenses under Section 310 of the Act; and
- Licenses under the Cable Landing License Act of 1921 for submarine cables connecting the U.S. to foreign countries.
The FCC reviews such applications pursuant to the Communications Act standards of whether the proposed service or investment will serve the "public interest" and the "public convenience and necessity."1 The FCC has augmented that review by referring such applications to Team Telecom for assessment of whether an application poses potential national security, law enforcement, or public safety risks.
Historically, parties have experienced long delays getting through Team Telecom's review process, which for years has been criticized for its lack of structure and transparency. Famously, in 2019, the FCC denied China Mobile USA's application to provide telecom services between the U.S. and foreign destinations based, in significant measure, on Team Telecom's input which was not provided to the FCC until six years after the application was filed.
The Executive Order
The Executive Order formally establishes the Committee as responsible for assisting in the FCC's public interest review of national security and law enforcement concerns that may be raised by foreign telecom license applications, adds a degree of transparency, and, importantly, imposes a time frame for the Committee's review.
The new Committee, which bears substantial similarities to the previous working group, is chaired by the U.S. Attorney General, with various other agencies serving as advisors. Those advisory agencies include the Departments of State, Treasury and Commerce, the Director of National Intelligence, OMB, the General Services Administration, the U.S. Trade Representative, and others.
Functions and Duties of the Committee
The Executive Order describes the functions and duties of the Committee as including:
- Reviewing and assessing license applications at the FCC for risks posed to U.S. national security and law enforcement interests by foreign participation in the U.S. telecommunications services sector;
- Responding to any risks presented by applications by recommending to the FCC, as appropriate, that it dismiss an application, deny an application, or condition the grant of an application on compliance with mitigation measures;
- Conducting the risk-based analyses necessary to fashion mitigation measures that address identified risks; and
- Monitoring compliance with any mitigation measures that the Committee has recommended be imposed by the FCC as conditions on a license.
The Executive Order also empowers the Committee to review existing FCC licenses to identify any "additional or new risks" to national security or law enforcement interests of the United States and, if warranted, to recommend either revocation of a license or modification of a license with a condition of compliance with mitigation measures.
The Committee's Review Process
The Committee's review process consists of (1) an initial review and, if warranted, (2) a secondary assessment, (3) requests to the parties and others for any necessary information and documents, and (4) in all cases, a risk-based analysis that includes consideration of a threat assessment prepared by the Director of National Intelligence.
- Initial Review: Upon referral by the FCC, the Committee will conduct an "initial review" of an application to assess whether it poses any risks to U.S. national security or law enforcement interests. During this process, the Committee may request that applicants, licensees, or other entities respond to questions and provide information needed for the review and assessment (see below).
Generally, the initial review must be completed within 120 days of the date on which the applicant is deemed by the Committee Chair to have fully responded to any questions and information requests posed by the Committee. If the Committee determines that granting the application does not raise a current risk to national security or law enforcement interests or, if it does, that standard mitigation measures would mitigate any such risks, the Committee will inform the FCC of that determination.
- Secondary Assessment: If the Committee determines that the application poses a risk to national security or law enforcement interests that cannot be mitigated by standard mitigation measures, the Committee is required to conduct a secondary assessment of the application and to inform the FCC that it is undertaking a further evaluation of the risk posed. A secondary assessment of an application generally must be completed within 90 days after the Committee's determination that a secondary assessment is warranted.2
- Information Requests: During both the initial review and any secondary assessment, the Committee may seek information from applicants, licensees, "and any other entity as needed" to establish facts about an application or license and to conduct the reviews and assessments required by the Executive Order. Information submitted to the Committee and analysis concerning such information are to be treated as confidential and not disclosed, except:
- (a) To the extent required by law or for any administrative or judicial action or proceeding, or for law enforcement purposes;
- (b) To other governmental entities at the discretion of the Chair, provided that such entities make adequate assurances to the Chair that they will not further disclose the shared information, including to members of the public; or
- (c) To the Committee on Foreign Investment in the United States with respect to transactions reviewed by that Committee pursuant to 50 U.S.C. 4565, in which case this information and analysis shall be treated consistent with the disclosure protections of 50 U.S.C. § 4565(c).
If an applicant fails to respond to a request for additional information, the Committee may either extend the initial review or secondary assessment period or make a recommendation to the FCC to dismiss the application without prejudice.
- Threat Assessment and Risk-Based Analysis: For each application or license reviewed by the Committee, the Director of National Intelligence is required to produce a written assessment of any threat to national security interests of the United States posed by granting the application or maintaining the license. The Committee, in turn, is required to base any recommendation it provides to the FCC on a written, risk-based analysis.
Outcomes of Committee Review
Once the review of a license application has been completed, the Executive Order requires that the Committee advise the FCC that it either:
- Has no recommendation and no objection to the grant or transfer of the license;
- Recommends denial of the application due to the risk to U.S. national security or law enforcement interests; or
- Recommends that the FCC grant the license or transfer contingent on compliance with mitigation measures or conditions which may be negotiated.
When reviewing an existing license, the Committee may recommend either revocation of the license, modification of the license to include a condition of compliance with mitigation measures negotiated by the Committee, or that the FCC take no action with respect to the license.
This process aligns with the current Team Telecom review mechanism, which typically has involved Team Telecom either approving an application as-is, rejecting it, or approving the application conditionally upon the applicant entering into a mitigation agreement with the U.S. government, usually in the form of a Letter of Assurance (LOA) or Network Security Agreement (NSA). As in the past, future mitigation agreements are likely to provide for audits, site visits, document inspection and other oversight, as well as for enforcement through liquidated damages, injunctive relief and license revocation.
Memorandum of Understanding
The Executive Order requires that within 90 days, the Committee Members enter into a Memorandum of Understanding (MOU) among themselves and with the Director of National Intelligence describing their plan to implement and execute the Order. The MOU shall, among other things, delineate questions and requests for applicants and licensees that may be needed to acquire information necessary to conduct the reviews and assessments, and define the standard mitigation measures that may be imposed.
Although the Executive Order purports to provide more structure and clarity than has existed previously under the Team Telecom regime, and while the forthcoming MOU and FCC regulations may fill some gaps, the Executive Order creates as many questions as it answers. Examples of those open questions might include the following:
Better Alignment of Team Telecom/CFIUS Processes?
The Executive Order may better align the prior Team Telecom review process with the CFIUS review process, which foreign FCC license applicants often need to navigate simultaneously. However, while the Executive Order acknowledges the ability of the two committees to communicate and even share information, it is uncertain whether it will result in an actual increase in collaboration or a reduction in the time and burden associated with the parallel review processes.
Impact on Pending FCC Applications?
The Executive Order applies to applications currently pending before the FCC, not only those that may be filed in the future. As the Executive Order gives the Committee 90 days to enter into an implementing MOU, it is unclear how the Committee will apply the Order in the interim to pending applications and whether this will cause significant delays in the processing of those applications.
Impact on Current FCC licenses?
There is little guidance in the Executive Order regarding how the Committee will exercise its apparently broad authority to review existing licenses, including the criteria that will be applied in deciding whether to initiate such review, the notice to be provided to licensees, and how licensees will be allowed to participate in the process.
It is clear, however, that licensees currently operating under a previously negotiated LOA or NSA should conduct internal audits and assessments of their current practices to be sure they are well-positioned to respond to any future Committee inquiry.
Faster Conclusion of Review?
Team Telecom reviews have been notoriously slow and often have extended far beyond the time in which companion CFIUS reviews were completed. While the Executive Order establishes 120- and 90-day shot-clocks for initial and secondary reviews, respectively, those deadlines depend on the discretionary judgment of the Chair as to whether an applicant has sufficiently responded to information requests.
Consequently, while the Order on its face appears designed to speed the review process, it is unclear how much discipline these deadlines will impose on the Committee's reviews. Companies should consider potential delays in framing the documents for and in setting expectations regarding foreign transactions that require Committee review.
Applicability to Broadcast Licenses?
The Executive Order focuses on the U.S. telecommunications services sector but makes no reference to review of foreign investments in broadcast licensees. It is unclear whether and how the Committee or some legacy interagency sub-group of the Committee will continue to scrutinize applications that raise national security concerns regarding such services.
Moreover, the Order's imprecise reference to foreign "participation" in the U.S. telecommunications services sector fails to indicate how broadly that focus will reach, e.g., whether scrutiny is limited to only foreign investment in a licensed facility. In the past, for example, LOAs and NSAs have imposed mitigation conditions that forbid licensees from including in their networks equipment manufactured by certain companies, such as Huawei.
Effect of Forthcoming FCC Rules?
In June 2016, the FCC commenced a rulemaking proceeding aimed at improving the timeliness and transparency of the process involving referral of certain applications with reportable foreign ownership to Executive Branch agencies, including Team Telecom.3 That proceeding was never concluded.
Now, in response to the Executive Order, the FCC has issued a notice announcing the re-start of the rulemaking and has solicited comment from both the public and the Executive Branch on a number of issues, including:
- Whether the Committee will make publicly available a standard set of questions and requests to applicants with reportable foreign ownership interests and, if so, how applicants will be able to access them;
- When applicants' responses to such questions are to be submitted to the Committee; and
- Whether certifications are to be made by foreign applicants as part of the application process.
Comments are due within 30 days of publication of the Notice in the Federal Register, and reply comments are due within 44 days after publication. While it is unlikely that the resulting FCC rules will stray far from the Executive Order, it is difficult to predict:
- Whether there will be inconsistencies between the FCC's rules and the procedures to be adopted in the MOU;
- How differences will be reconciled;
- How long reconciliation will take; and
- How ongoing FCC enforcement matters undertaken by the Commission in concert with the national security community in response to perceived Chinese threats to U.S. interests will be handled in the meantime.
The Executive Order is a good first step in bringing structure and transparency to a review process that has long operated in the shadows, and that will only grow in importance as national security, law enforcement, and public safety concerns play an increasingly important role in FCC licensing processes. How well it succeeds in serving those objectives will depend, in significant part, on the terms of the forthcoming MOU and FCC regulations. Stay tuned!
1 See, e.g., 47 U.S.C. §214(a); 47 U.S.C. § 309(a).
2 The 120-day and 90-day time frames are slightly longer than those recently established by the Department of Treasury for reviews conducted by CFIUS.
3 Process Reform for Executive Branch Review of Certain FCC Applications and Petitions Involving Foreign Ownership, Notice of Proposed Rulemaking, IB Docket No. 16-155, 31 FCC Rcd 7456, 7458, para. 6 (2016).