Last week, the Federal Communications Commission circulated a draft order that will formalize its coordination with what has been known as “Team Telecom”—the national security review process for foreign investments in U.S. telecommunications companies.  The draft order, which the FCC will consider for adoption at its September 30 Open Meeting, includes rules and procedures governing what has long been an informal process.

The FCC’s draft order adopts rules consistent with an April 4, 2020 Executive Order that rebranded the group of executive branch authorities long referred to as “Team Telecom” as the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector.  Despite the name change, Team Telecom will largely follow the existing review process; however, the new FCC rules do make a few key changes.  We highlight some of the basic changes below.

Functionally, the Team Telecom process will remain the same:  certain applications for FCC authorizations will trigger Team Telecom review, which may result in a recommendation that the FCC deny an application or condition its grant on the applicant’s compliance with specified mitigation measures.

Per the draft rules, applications for submarine cable licenses or international 214 authorizations—the license needed to provide international telecommunications service—reporting any foreign direct or indirect owner of 10% or more of the applicant’s ownership will still automatically trigger Team Telecom review, as will applications to assign, transfer control, or modify these licenses.  Petitions for Declaratory Ruling to exceed certain aggregate foreign ownership thresholds in Section 310(b)(4) of the Communications Act also will automatically trigger Team Telecom review.

However, under the new regime the FCC will no longer automatically refer applications for transfer or assignment of domestic 214 licenses, even if they would result in a foreign entity directly or indirectly holding 10% or more of the ownership.  The FCC will, however, retain discretion to refer these applications to Team Telecom, and the new rules do not prevent Team Telecom from seeking review on its own.

The new Team Telecom process also will exclude from referral certain applications deemed of low or minimal risk to national security, law enforcement, foreign policy, and trade policy concerns.  Specifically, the following applications will be excluded from automatic referral:

  • Applications or notifications of pro forma changes (e., events that do not result in a change in the actual controlling party);
  • Applications and petitions where the only reportable foreign ownership is held through intermediate holding companies and ultimate ownership and control is held by U.S. citizens and entities;
  • International 214 applications where the applicant has an existing mitigation agreement, there are no new foreign owners, and the applicant agrees to continue to comply with existing mitigation agreement terms; and
  • International 214 applications where the applicant was cleared by Team Telecom within the past 18 months without mitigation, and there are no new reportable foreign owners since that review.

The new rules will also establish a 120-day initial review period for the Team Telecom process, with a possible additional 90-day period for secondary assessment.  However, the 120-day review period begins when Team Telecom determines that an applicant’s responses are complete, so as a practical matter it is possible that the review period will always exceed 120 or, in the case of secondary assessment, 210 days in total.

The draft order also will enact rules concerning the information and certifications necessary for FCC applications, as well as additional rules concerning Team Telecom’s review authority.

Specifically, the draft order instructs the FCC’s International Bureau to develop new questions for applicants that will require them to provide certain information in their applications.  These new questions will pertain to the applicant’s (1) corporate structure and shareholder information; (2) relationships with foreign entities; (3) financial condition and circumstances; (4) compliance with applicable laws and regulations; and (5) business and operational information, including services to be provided by network infrastructure.

Applicants also will be required to certify up front that they will (1) comply with CALEA; (2) make communications to, from, or within the U.S., as well as records thereof, available to U.S. law enforcement officials; (3) designate a U.S. citizen or permanent U.S. resident as a point of contact for the execution of lawful requests and designate an agent for service of process; (4) affirm the accuracy of all information submitted and agree to keep it current; and (5) affirm their understanding that a failure to fulfil any conditions of the grant of their application can result in license revocation or termination and criminal and civil penalties.  (Broadcast licensees will be exempt from providing the first two of these certifications.)

Additionally, the draft order requires applicants to provide information about the voting interests of reportable 10% or greater shareholders, and subsea cable licensees affiliated with a carrier with market power in the cable’s destination market will be subject to certain reporting requirements regardless of whether the destination country is a WTO member.