HOW COULD A FOREIGN-OWNED COMMUNICATION SERVICE PROVIDER FAIL TO GAIN ACCESS TO THE US MARKET?

On April 4th President Trump issued an order titled “Executive Order Establishing the Committee for the Assessment of Foreign Participation in the United States Telecommunications Sector” (the “EO”).  The EO will replace Team Telecom with a senior, formal governmental authority to review applications for foreign investment in the US telecommunications sector. 

What are the implications of the EO for foreign-owned communication service providers (CSPs) that want to enter the US market? 

Background on the EO

Until now, Team Telecom was the inter-agency body that reviewed potential threats to national security and law enforcement posed by foreign-owned CSPs seeking to expand into the US. The working group has been hosted by DOJ and managed by the FBI. It has contributed to the Federal Communications Commission’s (the FCC’s) “public interest” review of each foreign CSP application by ensuring that the entity adequately assists the investigations of US national security and law enforcement. 

Over the past few years, the Trump Administration has grown increasingly concerned about potential threats to the security of America’s telecommunications infrastructure. One sensitive issue is whether to permit Chinese communication service providers to serve the US market.  A related question is whether Chinese telecom equipment vendors like Huawei and ZTE pose a threat to our national security. 

In response to these concerns, the administration strengthened the review powers of the Committee on Foreign Investment in the US (“CFIUS”). CFIUS performs functions like Team Telecom but spans all industries, not just the communications sector. In addition, last year the FCC opened a rulemaking to modify its rules governing subsidies for the buildout of broadband networks in rural areas. The proposed rules would condition the subsidies on the exclusion of Chinese-made network equipment. A few years ago, the FCC opened a proceeding to discuss how to streamline the Team Telecom process. That proceeding may now be moot. 

Against this backdrop the President issued the recent EO. Soon, the FCC is expected to finalize its pending rural broadband rulemaking in a way that conforms to the EO. 

Summary of the EO

The new “Committee” referenced in the title of the EO must be established by July 3rd. It will be chaired by the Attorney General. Other Committee members will include the Department of Defense, the Department of Homeland Security, and other agencies as the President may direct. A secondary governmental group called the “Advisors to the Committee” will play an advisory role in the process. The Advisors will be the State Department, Treasury Department, Commerce Department, the Office of Management and Budget, the Director of National Intelligence, the US Trade Representative, and others.  

Upon referral by the FCC, the Committee will review applications filed by CSPs with foreign ownership, as well as the licenses of CSPs that involve foreign ownership, to identify risks to national security and law enforcement. The review process will require the CSP to answer a detailed questionnaire. Presumably, the document will resemble the “triage” questionnaire that Team Telecom routinely handed to foreign-owned CSPs. If the Committee discovers a risk to national security or law enforcement, it may recommend “mitigation” measures to the FCC. Based on those recommendations, the FCC may dismiss the given application, modify it, condition the grant of license on the performance of certain law enforcement assistance, or revoke an existing license. 

For example, if the Committee audits a foreign CSP operating in the US and discovers an incident of noncompliance with a license condition, the Committee may recommend that the FCC further modify or revoke the license. 

The review process must take place within 120 days of the date the Committee decides the given questionnaire is complete. An additional 90-day period may be used for cases that require deeper analysis. Adverse decisions must be based on a written record. Team Telecom was not required to produce such writings. 

Implications for Foreign-Owned CSPs

Foreign-owned CSPs will soon face a more powerful and formal body when seeking FCC licenses to serve the US market. That does not necessarily make it more difficult to enter the US market. Foreign CSPs based in allied nations may jump through the national security hoops just as easily as they did in the Team Telecom days. The new regime will not require foreign CSPs to make any greater commitments to US national security or law enforcement than before. However, if someone as powerful as the Secretary of Defense or Homeland Security deems a CSP suspect for any reason – whether due to the owner’s home nation, its ties to suspicious entities, or the nature of the proposed communication service – the official could probably stop the CSP dead in its regulatory tracks. 

The Committee’s powers appear to be limited. It can only make “recommendations” to the FCC. However, that may be because a more obligatory process would have required Congressional legislation. It is hard to imagine the FCC rejecting a Committee recommendation, especially one backed by the Attorney General.  The FCC routinely took the advice of Team Telecom. Based on that record, the word “recommendation” probably means “command.”  

The national security review process may also become more politicized. For example, if the President needs more leverage in the US-China trade war, he might have his attorney general oppose an FCC application involving a Chinese interest. Alternatively, if the privacy lobby feels aggrieved by a foreign-owned CSP, the group could pressure the Administration – and by implication the Committee – to retaliate using its national security review and audit tools. 

In another sense, the higher-profile structure may benefit foreign-owned CSP’s. The 120-day review deadline may expedite the license process. Similarly, the more formal rules may create more accountability. A written record of an adverse decision could give an applicant valuable guidance. In the Team Telecom days, a single review could last a year or more, and the basis for its decisions was never publicly disclosed. 

On the other hand, the 120-day process does not start until the Committee chair says the questionnaire is complete. How hard could it be for the chair to find the questionnaire is not complete? That indicates the Committee has flexibility to slow down the train. 

By making the national review process more accountable, the EO impliedly makes foreign-owned CSPs more accountable. Applicants must be more candid than ever, in my view, when completing the questionnaire. Beyond that, they must thoroughly implement any promises to assist LEAs. One Committee audit could result in the loss of a license. 

The increased importance of CALEA Compliance

The increase in foreign-owned CSP accountability means those entities must, at a minimum, provide good-quality assistance for US lawful surveillance. Specifically, the foreign competitors must be prepared to demonstrate that they can deliver effective interception capabilities as required by the CALEA (lawful surveillance) statute. CALEA differs from the surveillance laws of other nations. For example, under CALEA a court may require a CSP to limit an interception to just the metadata of a suspect’s communications. Most of the foreign counterpart laws take an all-or-nothing approach, requiring the disclosure of both content and metadata or nothing at all. 

If a foreign CSP lacks familiarity with US surveillance law, it should retain the needed expertise before entering the new Committee-based foreign review process. It may hire a qualified US law firm or a trusted third-party provider of CALEA compliance programs. Subsentio is a leader in CALEA compliance. Either way, the foreign-owned CSP will likely find that US authorities take lawful surveillance more seriously than ever before.