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April 10, 2020

Stroock Special Bulletin

By: Chris Griner, Gregory Jaeger, Shannon Reaves, Christopher R. Brewster, Erin Bruce Iacobucci

New Committee Replaces ‘Team Telecom’ for Foreign Investment Reviews in the Telecommunications Sector

On April 4, President Trump issued an Executive Order (EO) establishing the “Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector” (Committee). The Committee replaces the informal working group known as “Team Telecom,” an interagency body that has long assisted the Federal Communications Commission (FCC) in reviewing the national security implications of foreign investment in the U.S. telecommunications sector. The EO provides a measure of regulatory clarity and discipline to the review of such transactions. It also creates the potential for additional regulatory burdens.

Before the Executive Order: Team Telecom’s purpose was to perform security reviews of foreign investment in U.S. telecommunications companies regulated by the FCC. The working group was principally composed of the Department of Justice (DOJ), the Department of Homeland Security and the Department of Defense. The Federal Bureau of Investigation also participated under the auspices of the DOJ (which often would take the lead in Team Telecom reviews). In practice, the FCC would forward to Team Telecom any license applications it received above a certain level of foreign investment, and would not act upon those applications without Team Telecom approval.

The Team Telecom agencies were also members of the Committee on Foreign Investment in the United States (CFIUS); accordingly, the Team Telecom review was generally conducted in parallel with the CFIUS review. Although Team Telecom sought to complete its reviews within the same time frame as CFIUS reviews, the Team Telecom and CFIUS review processes were subject to fundamentally different rules. Unlike CFIUS, Team Telecom operated under no mandatory deadlines, and its reviews could be frustratingly opaque and lengthy. Moreover, unlike the consensus-driven process of CFIUS, any Team Telecom agency could and sometimes did sidetrack and delay the review process with individual concerns.

After the Executive Order: The EO formalizes many of Team Telecom’s former practices.  Similar to Team Telecom, the Committee’s “primary objective [is] to assist the FCC in its public interest review of national security and law enforcement concerns that may be raised by foreign participation in the United States telecommunications services sector.” Commenting on the EO, John Demers, the Assistant Attorney General for National Security, noted that the U.S. continues to welcome foreign participation in the communications sector, but “must ensure that anyone licensed to do business here is a trusted partner.” Demers’ comments echoed concerns voiced by Attorney General William Barr, who warned that “the federal government must be vigilant and ensure that a foreign adversary cannot undermine the networks our country depends on.” The makeup of the Committee is similar to Team Telecom, including the Secretary of Defense, the Attorney General (acting as the Chair), and the Secretary of Homeland Security. The President may also add the head of any other executive department or agency, or any Assistant to the President. Other officials, such as the Secretaries of State, Treasury and Commerce, act as advisers to the Committee.

As with Team Telecom, it is the job of the Committee to determine whether the granting or transfer of a telecommunications license to a foreign-funded licensee would pose a risk to national security or to the law enforcement interests of the United States. As part of that process, the Committee will have the power to request and collect information from applicants. This is similar to the “triage” questions that were used by Team Telecom. The EO also grants the Committee the power, however, to review existing licenses “to identify any additional or new risks to national security or law enforcement interests of the United States.” This authority potentially broadens the scope of the review process, and could create additional regulatory risk for transactions that have already been completed.

The EO does impose some timelines on the Committee review process, which is a welcome departure from the complete lack of deadlines that characterized the Team Telecom process. Unlike the CFIUS process, however, the deadlines are not dependent upon the filing of an application, but instead are triggered by Committee decisions in the review process. For example, the 120-day period for the initial review begins on the “date the Chair determines that the applicant’s responses to any questions and information requests from the Committee are complete.” The Committee therefore retains considerable discretion on the timing of reviews notwithstanding the deadlines, and an element of uncertainty remains.

Going Forward: The EO is a welcome development in the Executive Branch review of telecom transactions involving foreign investment. Indeed, both FCC Commissioner Michael O’Rielly and FCC Chairman Ajit Pai issued statements to that effect. Nevertheless, many of the rules and regulations that will implement the EO will not be completed for some time. Before the EO can be implemented, the Committee Members (and the Director of National Intelligence or the Director’s designee) must enter into a Memorandum of Understanding (MOU) describing their plan to implement and execute the EO. The MOU must be completed within 90 days of the EO, or by July 3, 2020. The FCC Chairman also has stated that the agency will soon conclude its own pending rulemaking regarding the foreign ownership review process.

If you have any questions concerning the EO, or its potential application in foreign investment reviews, please contact us.

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For more information:

Chris Griner

Gregory Jaeger

Shannon Reaves

Christopher R. Brewster

Erin Bruce Iacobucci

This Stroock publication offers general information and should not be taken or used as legal advice for specific situations, which depend on the evaluation of precise factual circumstances. Please note that Stroock does not undertake to update its publications after their publication date to reflect subsequent developments. This Stroock publication may contain attorney advertising. Prior results do not guarantee a similar outcome.