On April 4th, 2020, President Trump issued an Executive Order on Establishing the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector. The Executive Order essentially formalizes the Federal Communications Commission’s (“FCC” or “Commission”) existing “Team Telecom” review process by establishing the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector (“Committee”), with one notable exception: for the first time, Team Telecom reviews will occur subject to a defined and limited timeframe of 120 days (with the possibility of 90 additional days), as further explained below. These timeframes are slightly lengthier than the review periods recently established by the Department of Treasury for reviews conducted by the Committee on Foreign Investment in the United States (“CFIUS”).[1]
Committee Composition and Operation. Like CFIUS, the Committee will be an inter-agency body. The Committee will be chaired by the Attorney General and composed of the Secretary of Defense, Secretary of Homeland Security, and any other head of an executive department or agency or any Assistant to the President the President deems appropriate. In addition, other government officials such as the Secretary of State, United States Trade Representative, and Director of National Intelligence will serve as advisors to the Committee. The Committee’s role will be to assist the FCC in a review of applications and licenses that may present national security risks. The Executive Order also requires the members of the Committee to enter into a Memorandum of Understanding among themselves and with the Director of National Intelligence (or the Director’s designee) describing their plan to implement and execute this order within 90 days. This Memorandum of Understanding will begin to outline the information requests and questions necessary for Committee review as well as standard mitigation measures.
Review Process. The Executive Order therefore largely codifies the current practices of Team Telecom for reviewing FCC applications: an application review process begins with a referral of an application by Commission staff to the Committee, which will initiate review and circulate questions and information requests to the applicants – these are typically referred to as the “Triage Questions.” Critically, the Executive Order imposes a specific and defined time period for the Committee to complete its initial review: 120 days, with the option to initiate a “secondary assessment” of an application for an additional 90 days. At the conclusion of the review period, the Committee will recommend to the Commission that it “dismiss an application, deny an application, condition the grant of an application upon compliance with mitigation measures, modify a license with a condition of compliance with mitigation measures, or revoke a license.” This process aligns with the current Team Telecom review mechanism, which typically involves Team Telecom signing off on an application as-is or approving an application conditionally upon the applicant entering into a mitigation agreement with the U.S. government, typically in the form of a Letter of Assurance (“LOA”) or National Security Agreement (“NSA”). The process for review of existing licenses outlined in the Executive Order is somewhat less detailed—a majority vote of Committee members may vote to initiate a review of an existing FCC license to identify any additional or new risks to national security or law enforcement interests of the United States.
Multiple FCC Commissioners have already expressed support for the Executive Order. For example, Commission Chairman Ajit Pai applauded the action and indicated the Commission would now move to conclude its own long-pending pending rulemaking on foreign ownership review. Frequent Team Telecom critic Michael O’Reilly similarly declared himself “exceptionally pleased” with the Executive Order and especially its implementation of a formal structure and deadlines.
Key Takeaways for Stakeholders. We see at least three key takeaways from the Executive Order for stakeholders:
First, the institution of a “shot clock” for Committee review adds much-needed certainty to the foreign ownership review process and allows counsel to more accurately advise transaction parties on deal timelines, which will be particularly important given the significant ongoing disruptions to the capital markets as a result of the COVID-19 pandemic. While the length of the Committee review could potentially stretch over seven months (including the time necessary to answer questions and information requests and the “supplemental assessment” period), a finite time limit for Committee review allows applicants with potential foreign ownership issues to account for potential Committee review in their deal documents and regulatory approval processes. The institution of the “shot clock” should also limit or even outright eliminate the protracted review periods that have attracted widespread criticism of Team Telecom review in the past.[2]
Second, the Executive Order gives the Committee wide latitude to review any existing Commission license to identify additional or new risks to national security, upon a majority vote of the Committee. This increase in review authority aligns with the current administration’s increased appetite for evaluating the national security risks posed by prospective foreign investors and existing Commission licensees.[3] The authority to review existing licenses means that existing licensees—especially licensees operating pursuant to an existing NSA or LOA—should evaluate their current network security practices and be prepared to respond to inquiries regarding such practices.
Third, subjecting Team Telecom to specific review periods—similar to the statutory review periods applicable to a CFIUS review—slightly alters the strategic considerations transaction parties consider when a deal will be subject to both Team Telecom and CFIUS review. Specifically, it is common practice for counsel to utilize the filing of a CFIUS notice to accelerate a Team Telecom review process, which formerly had no established review periods. Going forward, we anticipate that such CFIUS notices could be filed simultaneous to the FCC application triggering a Team Telecom review.
The adoption and implementation of the Executive Order fundamentally changes the calculus of the Team Telecom review process. If you have any questions about national security reviews of telecom-related transactions, or would like to participate in the FCC’s Team Telecom rulemaking process, please do not hesitate to contact us.
FOOTNOTES
[1] Pursuant to the Foreign Investment Risk Review Modernization Act, CFIUS mandates an initial 45-day review period, an optional 45-day investigation period, and one additional review period of 15 days.
[2] For example, the China Mobile application for a Section 214 license denied by the Commission in 2019 was originally filed in 2011.
[3] Commissioner Brendan Carr’s statement praising the Executive Order referenced his earlier calls for the FCC to examine revoking existing authorizations given the evolving nature of national security threats.