Introduction: A New National Security Review Process

On April 4, 2020, President Trump issued an Executive Order creating the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector (Committee). This order formalizes and expands the practices and procedures for reviewing certain foreign parties' license applications to the Federal Communications Commission (FCC) where such applications present national security, law enforcement or public safety concerns. The FCC previously deferred consideration of such issues to an informal working group of executive branch agencies known as "Team Telecom"; the Committee will now inherit Team Telecom's responsibilities. Soon afterward, on April 9, 2020, the Department of Justice (DOJ) announced that it was recommending that the FCC revoke and terminate "Section 214" authorizations extended to China Telecom (Americas) Corp. (China Telecom) to provide international telecommunications services to and from the United States.

In this alert, we provide a brief background on Team Telecom, review the parameters of the new Committee's authority and processes, and highlight some salient elements of the DOJ's announcement regarding China Telecom that may foretell how the FCC and the Committee intend to exercise their new authorities. Both the Executive Order and the China Telecom recommendation appear to be consistent with this administration's past actions—at the FCC and elsewhere—scrutinizing foreign investment in general and Chinese involvement in telecommunications in particular. For many foreign investors into the United States, a less nebulous Team Telecom review process will provide increased regulatory predictability. However, Chinese providers in the telecommunications or online service provision sectors and investors who back such companies should prepare for the administration to more aggressively review the role Chinese entities play in U.S. communications—not only in telecommunications but in sectors ranging from social networking to gaming.

Team Telecom: The Bane of Many Attempts at a Quick Closing

Team Telecom historically comprised DOJ (advised and informed by the Federal Bureau of Investigation [FBI]), the Department of Defense (DOD), and, since its creation in 2004, the Department of Homeland Security (DHS). Under the Communications Act of 1934, as amended, the FCC reviews license acquisitions and transfers to determine whether approval of a grant or assignment is in the "public interest." Team Telecom would intervene in the FCC's acquisition or transfer proceedings, placing those proceedings on hold until they could provide an opinion on the national security considerations to the FCC. The FCC historically deferred to the Team Telecom agencies on point. The DOJ, DOD, and DHS also involved other departments and agencies when necessary in the course of their review.

Because Team Telecom acted adjunct to the FCC's authorities, its powers were limited to making recommendations to the FCC to place conditions on the grant of a license or (in very rare cases) reject the application. As a practical matter, Team Telecom intervened in most applications involving a foreign party, and many Team Telecom recommendations to approve those applications were conditioned on security agreements (sometimes referred to as "mitigation agreements" or "mitigation measures") between the Team Telecom agencies and the parties. The Team Telecom process was informal, without any specific deadlines; however, FCC approval is required before consummating the transfer of many businesses that hold licenses. Frustratingly for many parties subject to Team Telecom review, the transfer of a business holding an FCC license could be delayed for months or even years by the review process.

Team Telecom issued its first significant public denial only last year. On September 11, 2011, China Mobile USA (China Mobile), a U.S. subsidiary of one of the large state-owned telecommunications operators in the People's Republic of China, submitted an application for a Section 214 license. After a review lasting nearly seven years, Team Telecom requested that the FCC deny the application "due to substantial national security and law enforcement risks that cannot be resolved through a voluntary mitigation agreement." On May 10, 2019, the FCC denied the China Mobile application as not in the "public interest."

How the Executive Order Changes Team Telecom

Formalizes the Team Telecom Concept. The Executive Order establishes the Committee and identifies the Committee's members as the Attorney General (who will act as the Chair of the Committee), the Secretary of Defense, and the Secretary of Homeland Security. Standing advisors to the Committee from several other agencies are also formally named. The Executive Order directs the Committee to respond to any risks presented by applications for license acquisitions or transfers by making recommendations to the FCC to, as appropriate, 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.

Establishes an Official Process and Timeline for Reviewing Applications. The Committee is charged with conducting an initial review of all applications referred by the FCC. The FCC is expected to continue the practice of referring all licenses that involve foreign participation, although the conditions for referral are not enumerated in the Executive Order. The Committee will then send questions to the applicants—presumably, a question set based on the existing Team Telecom practice of circulating "triage" questions, which are intended to assess quickly which applications might present national security or law enforcement concerns.

From the date that the Committee determines that the applicant's responses to the Committee's questions and information responses are complete, the Committee will have 120 days to complete its initial review. During the course of its review, the Committee will be able to seek additional information from applicants, licensees, and other entities as needed. The Director of National Intelligence will also provide a threat analysis to the Committee during the initial review period.

The Committee will take one of three actions at the conclusion of its initial review: (i) granting the application because it raises no national security or law enforcement risk; (ii) addressing any existing risk through mitigation measures; or (iii) requiring a more thorough "secondary assessment" of the application. In the third case, following a further 90-day assessment, the Committee will, in addition to the first two outcomes, have the right to recommend that the FCC deny the application.

The Executive Order also directs the Committee members to enter into a Memorandum of Understanding (MOU) between themselves and the Director of National Intelligence by July 3, 2020. This MOU will provide more specific details on the new Team Telecom process, and is expected to include a standard set of questions and information requests for new applications, similar to the previous triage questions used by Team Telecom. Typical triage questions address topics including: an applicant company's relationship with foreign governments; non-U.S. citizen access to potentially sensitive facilities and customer information; company physical and network security measures; identification and related information on the company's major shareholders; and detailed information on the company's operations, services and management. The MOU is also expected to include a standard set of off-the-shelf mitigation measures.

Process for Reviewing Existing Applications. Of great significance to existing foreign license holders, Section 6 of the Executive Order grants the Committee broad authority to review existing licenses. The Committee will decide to review an existing license based solely on its own majority vote, without any specific referral from the FCC, and such reviews will not be subject to deadlines. This provision for the first time creates the possibility that a license review could be triggered by the Committee itself, whether or not a transfer of control occurs, calling into question the solidity of previous FCC license grants.

The China Telecom Announcement

On April 9, 2020, DOJ announced it had recommended that the FCC revoke and terminate China Telecom's 2007 Section 214 authorization to provide international telecommunications services to and from the United States. In the course of receiving that authorization, China Telecom entered into a Letter of Assurance (LOA) with the FCC, which placed certain obligations on China Telecom. DOJ, along with other participating Executive Branch agencies, cited "substantial and unacceptable national security and law enforcement risks" associated with China Telecom's operations, along with China Telecom's failure to comply with aspects of its LOA, as making the FCC's prior authorizations to China Telecom inconsistent with the public interest. The DOJ statement cited the following bases for its recommendation:

• the evolving national security environment since 2007 and increased knowledge of the PRC's role in malicious cyber activity targeting the United States;
• concerns that China Telecom is vulnerable to exploitation, influence, and control by the PRC government;
• inaccurate statements by China Telecom to U.S. government authorities about where China Telecom stored its U.S. records, raising questions about who has access to those records;
• inaccurate public representations by China Telecom concerning its cybersecurity practices, which raise questions about China Telecom's compliance with federal and state cybersecurity and privacy laws; and
• the nature of China Telecom's U.S. operations, which provide opportunities for PRC state-actors to engage in malicious cyber activity enabling economic espionage and disruption and misrouting of U.S. communications.

Takeaways for Telecommunications Carriers, Investors, and Online Service Providers

For many foreign telecommunications carriers and foreign investors that invest into U.S. businesses, the establishment of the Committee should be welcome news. Thousands of businesses hold Section 214 licenses, and thousands more operate FCC-regulated satellites, hold regulated spectrum licenses, or are otherwise subject to FCC review upon transfer. Historically, the Team Telecom process has been notoriously opaque and slow, and foreign investment into such businesses has accordingly been discouraged. With the advent of the new Committee, foreign investors into FCC-regulated entities should have more tools for expediting that process and avoiding unnecessary duplication with review by the Committee on Foreign Investment in the United States (CFIUS). Historically, foreign investors in a transaction subject to the jurisdiction of both Team Telecom and CFIUS could use the CFIUS Notice filing process, which, in its most recent evolution, puts the U.S. government on a 90-day clock, to prod Team Telecom along. CFIUS has some discretion over the start date, and it can—and sometimes does—effectively reset its own clock by requiring parties to withdraw and refile, but the CFIUS process was subject to statutory deadlines from which Team Telecom was unbound. The Executive Order creates a time-bound process analogous to the CFIUS filing deadlines, raising the possibility that regulators under both regimes will see some benefit to coordinating their reviews. As a result, parties may less frequently need to proceed through both reviews in parallel. However, the Committee retains significant discretion under the new process to set the timing of its reviews, and the full impact of the revisions to the existing Team Telecom process will not be known until the Committee has drafted and started operating under the new MOU.

For Chinese licensees and investors into Chinese telecommunications operators, the new Committee and the China Telecom recommendation may serve as a warning of further investigations to come. This first action after the release of the Executive Order may well be the first action in a wave of investigations directed against China-based telecommunications companies that are operating in the United States. Firing this salvo against a Chinese telecommunications provider so soon after the Team Telecom announcement should come as no surprise. The administration and the FCC have focused their attention on Chinese influence in American telecommunications networks for some time—see, e.g., the FCC's November 22, 2019, announcement indicating its preliminary designation of Huawei Technologies Company and ZTE Corporation as posing a national security threat to U.S. networks.

Should the FCC continue to expand the set of services that it regulates—e.g., if much-discussed "net neutrality" regulations return under a new administration—additional services that transit over FCC-regulated telecommunications networks, such as online services, may become subject to the Committee's process. Even if the FCC does not expand its regulatory purview, the U.S. government has increasingly used other tools—such as CFIUS—to evaluate the national security implications of foreign involvement in online service providers. Recent investigations into Chinese investments in entities such as TikTok, Grindr, and PatientsLikeMe demonstrate the acute concerns the U.S. national security establishment sees in Chinese investment into communications services of all kinds.

Prospective applicants and foreign investors into FCC-regulated companies would be wise to factor this new formalization of the Team Telecom review process into their timelines. Meanwhile, existing foreign FCC licenseholders—especially those from China—should be prepared to address inquiries from the Committee.

For more information on the new Team Telecom process or FCC transfer of control considerations, please contact Josh Gruenspecht, Stephen Heifetz, or any member of Wilson Sonsini's National Security or Communications and Networking practices.