"Team Telecom" Revamp: New Executive Branch Process for Reviewing Foreign Participation in US Telecom Sector

On April 4, 2020, President Trump issued an Executive Order formalizing and revising the "Team Telecom" process. This is how the Executive Branch provides input on national security and law enforcement issues to the Federal Communications Commission (FCC) in connection with an application for an FCC license or other FCC authorization. The retooled Team Telecom will now be known the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector (the Committee).

The Committee will consist of the Attorney General, the Secretary of Defense, and the Secretary of Homeland Security (or their designees), plus such other officials as the President determines appropriate. The Attorney General will act as Chair. Other departments and agencies—including State, Treasury, Commerce, the Office of Management and Budget, the US Trade Representative, the Director of National Intelligence, and the General Services Administration—will be able to designate non-member advisors to the Committee.

After an FCC referral, the Committee is to conduct an initial review lasting no longer than 120 days after the applicants provide complete answers to any questions that the Committee might ask. During this initial review, the Committee may make one of these determinations: (i) the application poses no current risk to national security or law enforcement interests, (ii) any risks can be addressed through standard mitigation measures, or (iii) a secondary assessment is warranted. Any such secondary assessment shall be completed within 90 days. If the Committee recommends a denial or non-standard mitigation measures, the Committee is to consult with its non-member advisors. The Committee shall convey its recommendation to the FCC through the Administrator of the National Telecommunications and Information Administration.

The formalization of this process and the designation of time limits for review will be welcome news for potential foreign participants in the US telecom sector—in some cases, Team Telecom has taken years to complete its review of referred FCC applications. However, the prescribed deadlines may not always be met:  agencies generally have flexibility to determine when a filing is deemed "accepted" and can "pause" reviews of a filing under certain circumstances. Nevertheless, the specification of the 120-day and 90-day periods helps parties to plan their FCC strategies and to coordinate them with regulatory proceedings before the Committee on Foreign Investment in the United States (CFIUS) and antitrust authorities.

What may be less welcome news is that the Committee's jurisdiction is not limited to those applications that the FCC refers to the Committee. The Committee may now on its own initiative also review existing FCC licenses to identify any additional or new risks to national security or law enforcement interests. The Committee may recommend to the FCC that licenses be modified to include new conditions or be revoked.

The interplay between the Committee's ongoing review authority and CFIUS will be something to watch closely. Successful conclusion of CFIUS review provides a "safe harbor" for foreign investors, assuring them that the transaction will not be disturbed under the Defense Production Act for national security reasons after closing, but the Committee process does not. This could mean that a transaction that cleared both CFIUS and the Committee could be subject to post-closing review by the Committee.

In light of the Executive Order, FCC Chairman Pai has announced plans to complete an FCC rulemaking that began with a 2016 NPRM on the Team Telecom referral process. The NPRM had proposed that applicants with reportable foreign ownership provide additional information in their initial FCC applications to expedite Team Telecom's review. The NPRM also suggested that the FCC develop a timeframe in which it would accept Executive Branch input.

FCC Commissioner Carr, for one, appears eager for the Committee to exercise its ability to scrutinize existing license holdings, not just new applicants. The Commissioner has recommended that the Committee examine every carrier owned by the Chinese government that now connects to networks in the US, including China Unicom and China Telecom, and consider revoking their authority to do so. The FCC had previously denied a request from China Mobile for authority to provide international facilities-based and resale services between the US and foreign destinations.

When viewed together with CFIUS's expanded jurisdiction, the Executive Order in May 2019 on Information and Communications Technology and Services, and the Department of Commerce's proposed rules implementing many aspects of that Executive Order, as well as recent laws relating to "covered telecommunications equipment and services," the Executive Branch now has sweeping authority to review, condition, block, and disturb foreign investments in the United States and other transactions with a US nexus that involve foreign telecommunications or technology companies.

© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.