April 09, 2020

Trump Administration Establishes the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector

A federal interagency group commonly referred to as “Team Telecom” has been operating largely behind the scenes for years, advising the Federal Communications Commission (FCC) on the FCC’s review of the national security implications of applications for FCC approval of market entry, investments and acquisitions that may involve foreign ownership of telecommunications carriers and other communications services providers. On April 4, 2020, President Trump issued an executive order (the Order) that is expected to make a number of changes to the “Team Telecom” process and increase its prominence in reviewing telecommunications-related transactions that may have national security implications. As with other recent changes to the U.S. foreign investment laws administered by the Committee on Foreign Investment in the United States (CFIUS) (such as those described here and here), this change has significant bipartisan support in Congress and the U.S. national security community. Companies and investors in the U.S. telecommunication sector should closely analyze and monitor these developments – which are expected to further shape patterns of foreign investment in this sector in the years ahead.

The Order changes the name of Team Telecom to the “Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector” (the Committee). Its membership will include the heads of the following federal agencies: the Department of Defense, the Department of Justice, the Department of Homeland Security, and any other executive department or agency that the President determines appropriate. Former Team Telecom members (the Department of Commerce, the United States Trade Representative, and the Office of Science and Technology Policy) and several other agencies will serve as “Committee Advisors.” Committee Advisors will have limited authority to oppose any Committee recommendation, to deny an application, to provide additional analysis related to threat assessment or risk mitigation, or to collaborate with the Committee to present relevant policy, administrative or legislative proposals.

Significantly, the Order grants the new Committee authority to review on its own motion any existing FCC licenses to “identify any additional or new risks to national security or law enforcement interests of the United States.” As a result, the Committee may now recommend reviews of transactions that closed months or years ago, and may, where it finds national security concerns over those investments, recommend to the FCC and Administration that they be revoked or unwound. As FCC Commissioner Brendan Carr recently emphasized, this new authority will allow the Committee to “examine every carrier owned by the Chinese government that now connects to networks here in the U.S.” This may result in new reviews of past investments by Chinese carriers, including China Unicom and China Telecom, that some in the FCC and Congress have been pushing for since at least 2018.

Under the framework laid out in the Order, the Committee is expected to follow some of the same processes that Team Telecom has used for years. For example, once the FCC refers an application to the Committee, the FCC normally will not act on the application until the Committee has completed its review. One or more Committee members will then send the applicant a set of questions seeking information about their application, such as the 5% or greater owners of the applicant, the names and identifying information of officers and directors of companies, the business plans, and details about the network to be used to provide services.

Over time, some have criticized the Team Telecom process for lacking sufficient transparency and guidance for applicants. One of the few publicly-available sources for information about Team Telecom’s work process was a redacted executive branch recommendation letter published on July 2, 2018, requesting that the FCC deny an application submitted by China Mobile International (USA) Inc. for authorization to offer telecommunications services as a common carrier between the United States and international locations. Further, because there was no published framework or procedural timeline for its work, the Team Telecom review in practice could last anywhere from fourteen days to as long as seven years.

The new Executive Order addresses many of these past criticisms. For example, the Order establishes new procedural requirements that have been under consideration for many years. For instance, once the Department of Justice determines that all information needed for an application is complete, the Committee has 120 days to conduct an initial review to determine whether a “current risk to national security or law enforcement interests” exists and whether such risk “may be addressed through standard mitigation measures recommended by the Committee.” If the Committee determines, during the initial assessment, that a secondary assessment is warranted because the proposed investment’s risks to national security or law enforcement interests “cannot be mitigated by standard mitigation measures,” the Committee has an additional 90 days to complete its review. If the applicant fails to respond to the Committee’s requests for information during this review process, the Committee may either extend the assessment period or recommend that the FCC dismiss the application without prejudice.

If the Committee staff preliminarily recommend that the FCC deny an application, impose non-standard mitigation measures on the license or revoke a license, the recommendation will be reviewed by the Committee Advisors. The Committee Advisors may oppose the recommendation within 21 days, which will trigger a 30- or 60-day period during which the Committee and the Committee Advisors will work together to attempt to resolve any objections. If those attempts fail, the Committee will finalize the recommendation by a majority vote. The Committee will then notify the President and FCC of its intended recommendation. If, on the other hand, the Committee finds no objections or has no recommendations as to the proposed investment, it may recommend that the FCC move forward with its action on the application. The Committee may also recommend that the FCC should only grant the application conditioned upon the applicant’s compliance with certain mitigation measures, subject to continued monitoring by the Committee. The FCC will continue to make an independent decision on whether to adopt the Committee’s recommendations and what specific actions will be taken on a particular transaction.

Along with other recent changes to the U.S. foreign investment laws, the Order is expected to profoundly affect how companies assess the feasibility of transactions involving foreign ownership in the U.S. telecommunications industry. With a growing number of transactions being subjected to these reviews in recent years, as well as in light of the Committee’s new powers to review past transactions and existing investments, companies with foreign ownership in the U.S. telecommunications sector and U.S. telecommunications companies considering attracting foreign investment should review the national security implications of any such investment and be prepared for reviews and inquiries under the new process.

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