Client Alert

New Team Telecom Process Formalized; FCC Rules to Follow

April 07, 2020

By Sherrese Smith, Andrew Erber & John Gasparini

On April 4, 2020, President Trump issued an Executive Order establishing a Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector. The Order formalizes the presently ad hoc “Team Telecom” process of national security review of communications transactions involving foreign investment and adds to the complex regulatory environment for these deals. Soon after, FCC Chairman Ajit Pai applauded the action and announced that the Commission would conclude its pending rulemaking to reform its foreign ownership review processes.

The new Committee preserves much of the Team Telecom process, but the Order adds several new elements that could lead to deeper investigations and lengthened review timelines. There is a great deal of uncertainty as to how the Order will apply to applications currently pending before Team Telecom and what steps the FCC will take in the coming months to align its processes with the Committee’s work. Below, we highlight key components of the new Committee process and certain issues that companies transacting in the communications industry should consider in planning and executing such deals.

Structure of the Committee

The Committee established in the Order largely adopts the structure of the existing Team Telecom working group, with the Attorney General serving as Chair and the Secretaries of Defense and Homeland Security as permanent members. A long list of “Committee Advisors,” will receive notice and an opportunity to object to any recommendation other than unconditional approval or grant with standard mitigation measures. Among others, these Advisors include the Secretaries of State, Treasury, and Commerce, the Director of National Intelligence, the U.S. Trade Representative, and the Director of the Office of Management and Budget.

Committee Review Process

Much like existing processes, the Committee will review applications for licenses or transfers of control filed with the FCC to determine whether their approval would pose a risk to national security or law enforcement interests of the United States. The Order adopts a number of significant changes to these national security reviews, including the following:

  • Initial Review: First, for all transactions referred to it by the FCC, the Committee will conduct an “initial review” to identify any risk to “national security or law enforcement interest of the United States”. The Order assumes that the Committee will submit information requests to the applicants (aligning with current Team Telecom practice), but provides no other detail on what information the parties will be asked to provide. This initial review runs on a 120-day shot clock, which begins when the Chair determines that the applicant’s responses to the Committee’s questions and information requests are complete. After reviewing applicants’ responses, the Committee can conclude its review by recommending that the FCC issue an unconditional grant or a grant conditioned on standard mitigation measures.

  • Secondary Assessment: The Committee can also extend its review for an additional 90 days, if such a review is “warranted” because the risks posed by the transaction cannot be mitigated through standard measures. A majority vote of the Committee (or at the Chair’s election in the event of a tie) can trigger a secondary assessment. The Committee can submit additional questions and can extend time for review if the parties fail to respond.

  • Written Threat Assessment: For all applications, the Director of National Intelligence is required to prepare a “written assessment of any threat to national security interests of the United States” associated with the transaction. That analysis must be delivered within 30 days of the earlier of either the Chair’s request for such an analysis, or the Chair’s determination that responses to questions and information requests are complete.

  • Sua Sponte Review: Finally, the Committee is given the authority to review any existing FCC license outside of a transaction. The scope of this provision is broad, permitting the Committee to review “any additional or new risks to national security or law enforcement interests.” Such reviews may result in no action, or in recommendations that the FCC modify or revoke a license, due to national security or law enforcement concerns.

Recommendation Process

When the Committee has concluded its investigation of an application or review of a license, it will vote on a proposed recommendation for the FCC. Potential recommendations include: (i) unconditional grant, (ii) grant conditioned upon standard mitigation measures, (iii) grant of an application or modification of a license contingent upon non-standard mitigation measures, or (iv) denial of the application or revocation of a license.

The Order requires that all recommendations be based on a written risk-based analysis. In most cases, the Committee will directly notify the Administrator of NTIA, who then will notify the FCC of the recommendation within seven days. Once notified, the FCC is authorized to act on the application pursuant to its own statutory authority.

If the Committee did not achieve unanimous consent and proposed a recommendation on the basis of a majority or tie vote, then the President must be notified within seven days if the recommendation or opposition involves grant of an application or modification of a license contingent upon non-standard mitigation measures or denial/revocation of a license require additional procedural steps. The FCC is to be notified of such recommendations not earlier than 15 days after the date the President was notified of the intended recommendation.

Immediate Impact and Outstanding Questions

The Order marks a sea change in how national security reviews will be undertaken in the communications sector. We have identified a few immediate impacts that the Order will have and a number of questions that companies will need to consider, going forward.

  • Applies to Pending Applications. Importantly, the Order applies to applications currently pending before the FCC, not just prospective applications. Depending on how the Committee implements the Order, some of its new requirements—particularly the written threat assessment—could cause significant delay in the processing of existing applications. In addition, the Order gives the Committee 90 days to adopt implementing MOUs. In the interim, it is unclear what processes the Committee will use to review existing applications or whether there will simply be a pause in such reviews while new procedures are developed.

  • Timing Risk. The impact of the Order on review timelines is also unclear. While the Order includes shot clocks for most review stages, they are triggered by discretionary actions of the Chair, so provide little certainty to applicants. A total of 210 days is allotted for initial and secondary reviews after the Committee has received answers to its questions (which may itself be months after FCC applications were filed). Given the flexibility of these shot clocks, they will likely impose little practical timing constraint on the Committee’s review of transactions. Companies should be cognizant of these potential delays and incorporate lengthened regulatory review periods for transactions involving foreign ownership.

  • Review of Existing Licenses. The Committee’s authority to review existing licenses is broad, and there is little guidance on how that authority will be exercised. The Order does not indicate whether there will be any notification to licensees if such a process is initiated, or any opportunity for participation in the process. The Order only expressly requires notification of the Committee Advisors, not licensees or even the FCC.

  • FCC Rules. Lastly, it remains unclear what actions the FCC will take. The Notice of Proposed Rulemaking was adopted in 2016, with little activity in the docket since then. Until an MOU is finalized and the FCC takes its own action, it remains unclear how much of NTIA’s or the FCC’s prior proposals will form the basis of the agency’s eventual action. Given the elapsed time, it may prove necessary for the FCC to refresh its record on these issues, or even propose a new set of rules if its plans now differ significantly from the 2016 proposal.

The new Executive Order has broad potential implications transactions in the telecommunications industry and will significantly impact national security review processes and timelines for both pending and prospective transactions. We will be following up with additional analysis as the FCC moves to adopt new rules and the Committee’s processes take shape. To learn more about this new Committee, its impact on pending and forthcoming transactions, and the FCC’s next steps in response, contact Sherrese Smith, whose contact information appears below.

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