President Trump Issues Executive Order Creating Telecommunications Assessment Committee

President Trump has issued an Executive Order establishing the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector (the Committee). The Executive Order formalizes Team Telecom—a previously informal group of representatives from the Department of Homeland Security, the Department of Justice, and the Department of Defense—that is responsible for reviewing the potential national security and law enforcement implications of foreign participation in the US telecommunications sector. The Committee will act in parallel with the Committee on Foreign Investment in the United States (CFIUS), which has broad authority to review the national security implications of foreign investments in US businesses, and indeed there are similarities between the CFIUS process and that of the Committee.

This Executive Order, along with the Executive Order on Securing the Information and Communications Technology and Services Supply Chain (client alerts here and here) and the expanded jurisdiction of CFIUS (client alerts here and here), reflects the US Government’s evolving approach to national security issues related to technology, investment, and critical infrastructure. These national security review developments align with the broader US Government focus on China, which includes efforts by the Federal Communications Commission (FCC) to exclude Huawei and ZTE from US networks, restrictions on government procurement and use of certain Chinese technologies, and the Department of Justice’s China Initiative. This focus on China is further evidenced by the April 9, 2020, recommendation from executive branch agencies that the FCC revoke the telecommunications license for China Telecom.  

Companies and investors should be mindful that business arrangements in this sector with a nexus to China could be subject to additional scrutiny and should adopt strategies to prepare for potential engagement with US authorities.

Main Features of New Process

The Executive Order directs the Committee to: (1) review applications or licenses referred to it by the FCC to assess whether such applications or licenses present risks to national security and law enforcement interests; and (2) respond to any risks an application or license presents by recommending to the FCC 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. Recommendations of the Committee are not binding, but the FCC has to date generally deferred to the national security and law enforcement expertise of Team Telecom, and that practice is expected to continue with the Committee.

A significant feature of the Executive Order is the establishment of procedural steps and timelines for the Committee’s review of matters—addressing long-standing criticism that the Team Telecom process was slow and opaque. The Executive Order also establishes a dispute resolution mechanism for elevating and resolving issues among the Committee members and advisors. The Executive Order’s most significant impact may be its explicit direction that the Committee can review existing licenses to identify additional or new national security or law enforcement risks, even where the existing license has been previously reviewed and is not subject to a mitigation agreement. The Committee’s authority in this regard stands in contrast to that of CFIUS. Once CFIUS has cleared a transaction, it no longer has jurisdiction to review a transaction, provided the parties abide by any mitigation agreement.

Background on Team Telecom

The FCC is responsible under the Communications Act of 1934 for evaluating certain transactions to determine whether granting a license would be in the public interest. These include licenses issued pursuant to section 214 (common carrier communications) and section 310 (radio stations). The FCC also reviews applications to own and operate submarine cables associated with landings in the United States pursuant to the Cable Landing License Act of 1921. To assist its review, the FCC refers certain license applications with a foreign nexus to Team Telecom to evaluate the national security and law enforcement implications.

Prior to this Executive Order, there were no formal rules dictating the process or timeline for Team Telecom review. In some instances, review of applications would take several years. The Executive Order addresses this issue by establishing the processes and timelines by which the Committee will conduct its review.

The Committee Application Review Process

The Executive Order directs the Committee, upon referral of an application by the FCC, to conduct an initial review to evaluate whether granting the requested license or transfer of license may pose a risk to national security or law enforcement interests of the United States. During the initial review, the Committee may determine: (1) that granting an application for a license or the transfer of a license raises no current risk to national security or law enforcement interests; (2) that standard mitigation measures recommended by the Committee can address any identified risk to national security or law enforcement interests; or (3) that the application warrants a secondary assessment because standard mitigation measures cannot address the risk to national security or law enforcement interests.

The Committee can: (1) advise the FCC that it has no recommendation on the application and no objection to the FCC granting the license or transfer of the license; (2) recommend that the FCC deny the application; or (3) recommend that the FCC only grant the license or transfer of the license contingent on the applicant’s compliance with mitigation measures.

The Committee must complete an initial review within a 120-day period beginning on the date the Committee Chair determines that the applicant’s responses to any questions and information requests from the Committee are complete. If the Committee determines that an application warrants a secondary assessment, it must complete the secondary assessment no more than 90 days after the date of the determination. In the event an applicant fails to respond to any additional requests for information after the Committee Chair determines the responses are complete, the Committee may either extend the initial review or secondary assessment period or make a recommendation to the FCC to dismiss the application without prejudice. The Chair must notify the FCC of a determination that the applicant’s responses are complete, of any extensions of the initial review period, or when the Committee recommends dismissal for failure to respond to requests for additional information.

During the review process, similar to the CFIUS process, the Director of National Intelligence must produce a written assessment addressing whether granting the application would pose any threat to national security interests of the United States. In addition, the Committee is empowered to seek information from applicants, licensees, and any other entity as needed to further its assessment. Any information that is provided to the Committee as part of the review will not be disclosed beyond Committee members and Committee advisors, except to the extent required by law or for any administrative or judicial action or proceeding, for law enforcement purposes; to other government entities at the discretion of the Chair, provided that such entities make adequate assurances that they will not further disclose the shared information; or for transactions reviewed by CFIUS.

The Committee Chair must notify the FCC of a final recommendation through the Administrator of the National Telecommunications and Information Administration, and the Administrator must notify the FCC of the recommendation within seven days of the notification from the Chair.

The Committee License Review Process

Although Team Telecom has not historically recommended the revocation of an existing license that is not subject to a mitigation agreement, the Executive Order makes clear that Committee has the power to do so. The recent recommendation to revoke China Telecom’s license, which was made using the processes of Team Telecom and announced after the issuance of the Executive Order, suggests that Committee could be active in this area.

By majority vote, the Committee may determine whether to review existing licenses to identify any additional or new risks to national security or law enforcement interests of the United States. The Committee can: (1) recommend that the FCC modify the license to include a condition of compliance with mitigation measures negotiated by the Committee; (2) recommend that the FCC revoke the license; or (3) take no action regarding the license.

The Executive order does not specifically articulate a process for reviewing an existing license. However, the processes and requirements pertaining to Intelligence Community reports, requests for information, information confidentiality, and reporting to the FCC remain the same as the application review process.

Risk Mitigation and Monitoring

The Committee may recommend that the FCC condition the grant, transfer, or continuance of a license on compliance with any mitigation measures to address national security or law enforcement risks. The Committee typically negotiates these measures in advance with parties and has authority to monitor any mitigation measures the FCC imposes as a condition on a license and make recommendations to the FCC regarding any material noncompliance by an applicant or licensee.

Conclusion

The Executive Order is part of the Trump Administration’s ongoing efforts to expand its review of foreign technology and foreign investment in areas that are of potential national security or law enforcement concern. The processes and timelines established in the Executive Order are a welcome improvement to the more informal Team Telecom process, although it remains to be seen how the Committee will implement any review of existing licenses. In a related effort, the FCC announced that it would conclude its own pending rulemaking on reform of the foreign ownership review process, which the FCC first initiated in 2016. Whatever the final rules are, the recent recommendation to revoke China Telecom’s license indicates that the Trump Administration may be inclined to act aggressively in this area.  

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Steve Bunnell, an O’Melveny partner licensed to practice law in the District of Columbia, Greta Lichtenbaum, an O’Melveny partner licensed to practice law in the District of Columbia, Lisa Monaco, an O'Melveny partner licensed to practice law in the District of Columbia and New York, John Dermody, an O’Melveny counsel licensed to practice law in California, and David J. Ribner, an O’Melveny counsel licensed to practice law in the District of Columbia and New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

© 2020 O’Melveny & Myers LLP. All Rights Reserved. Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding New York’s Rules of Professional Conduct to O’Melveny & Myers LLP, Times Square Tower, 7 Times Square, New York, NY, 10036, T: +1 212 326 2000.