Trump Administration Formalizes "Team Telecom" Review of Non-US Investment in US Telecommunications Services Sector

President Trump has issued an Executive Order (“EO”) establishing the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector (the “Telecom Committee”). The Telecom Committee will advise the US Federal Communications Commission (“FCC”) concerning national security risks presented by non-US (foreign) investment in the US telecommunications services sector.

Although the Telecom Committee’s name is new, the EO is intended to formalize the long-standing national security review of FCC license applications by “Team Telecom,” an interagency group with representatives from the Departments of Defense (“DoD”), Homeland Security (“DHS”), and Justice (“DoJ”). Consistent with Team Telecom’s role, the Telecom Committee is limited to an advisory function. The Telecom Committee will be able to, for example, recommend that the FCC deny a license application based on credible evidence of national security risks posed by an application. In contrast to the Committee on Foreign Investment in the United States (“CFIUS”), the US’s chief foreign investment regulator, the Telecom Committee cannot, however, unilaterally block transactions or impose mitigation conditions.

The procedures by which the Telecom Committee will review applications and licenses are outlined at a high level in the EO, and summarized below. The procedures generally mirror Team Telecom’s informal practices, but clarify the Committee’s decision making process and, notably, set some timelines on its review. A forthcoming Memorandum of Understanding (“MoU”) should include additional information about the Telecom Committee’s formalized review process.

For now, the EO does not fundamentally change the review process for transactions that are also subject to review by CFIUS, which has much broader jurisdiction and power than the Telecom Committee to review investments in US businesses. As such, non-US parties should continue to assess direct or indirect investments in US businesses to determine whether they should, or must, be notified to CFIUS.

Background: Team Telecom and continued US focus on the telecom sector

Team Telecom historically held sway over the FCC’s decision making. For example, the FCC denied China Mobile’s application to provide services in the United States in 2019 based on Team Telecom’s recommendation. And just a few days after the new EO was issued, Team Telecom recommended that the FCC revoke and terminate China Telecom (Americas) Corp.’s authorizations to provide services in the United States.

The new EO serves to formalize the influence of national security considerations with respect to the FCC’s review process. The establishment of the formal Telecom Committee also demonstrates the Trump Administration’s continued focus on the national security risks presented by non-US investment in the telecommunications sector. Indeed, in May 2019, President Trump issued an Executive Order authorizing the Department of Commerce to review, block or modify transactions involving information and communications technology and services that originate from “foreign adversary” countries. Commerce issued proposed regulations under that order in November 2019; final regulations have not yet been issued.

Purpose and makeup of the Telecom Committee

As with Team Telecom, the Telecom Committee’s purpose is to review FCC license applications for risks to national security and law enforcement interests. As discussed below, the FCC typically refers applications to the Telecom Committee. Although not necessarily a new authority, the EO also states that the Telecom Committee may review existing licenses and recommend that they be revoked.

The Telecom Committee’s voting members include the Secretary of Defense, the US Attorney General, and Secretary of Homeland Security. The Telecom Committee’s members may also include other heads of executive departments or agencies as determined by the President. The new EO appoints the Department of Justice (specifically, the Attorney General) as chair of the Telecom Committee, and directs the Attorney General to designate committee members to serve as the lead for executing functions of the Telecom Committee (so-called “Lead Members”). Lead Members may be responsible for, among other things, submitting questions to applicants, identifying national security and law enforcement risks, and proposing mitigation measures. Additionally, the Secretaries of State, Treasury, and Commerce, the Director of National Intelligence, and other agency heads with national security responsibilities will serve as “advisors” to the Telecom Committee. These advisors will largely serve in, as the name implies, consulting roles, but may assist the Telecom Committee in reaching a recommendation when there is a deadlock among the members.

Procedures for review and recommendations

The EO does not fundamentally depart from Team Telecom’s historic review practices. As before, the FCC will refer new license applications to the Telecom Committee, which is to recommend a course of action based on a national security risk assessment.

Under the EO, the review process can include two stages. Upon receipt of an application, the Telecom Committee will conduct an initial review of the application to determine whether granting the requested license or transfer of the license poses national security risks. Before the conclusion of the initial review, the Telecom Committee may decide that no risks are present; that the risks, if any, can be mitigated through “standard” mitigation measures (which are undefined in the EO); or that a secondary assessment is warranted because standard mitigation measures would not be sufficient. As part of its review process, the Telecom Committee may ask applicants for additional information, which will be treated confidentially but may be shared: (i) to the extent required by law (e.g., in a judicial action); (ii) with other governmental entities at the Attorney General’s discretion, provided that those entities agree not to share the information further; and (ii) with CFIUS. The Telecom Committee’s initial assessment is to be completed within 120-days of the date when the Telecom Committee determines that the applicant’s responses to its questions are complete.

So-called “secondary assessments,” if necessary, are to be completed within 90 days of the Telecom Committee’s determination that a secondary assessment is warranted. However, both reviews may be extended if an applicant fails to respond to requests for information. In that case, the Telecom Committee may recommend that the FCC dismiss the application without prejudice.

Based on its review and a written national security risk assessment prepared by the Director of National Intelligence (discussed below), the Telecom Committee may advise the FCC that it has no objection to the FCC granting a license or transferring it to another person. However, if the Telecom Committee determines there is “credible evidence” of national security risks presented by the application or license, the Telecom Committee will recommend to the FCC that it: (i) dismiss the application; (ii) deny it; (iii) condition the application’s grant on certain mitigation measures; (iv) modify it; or (v) revoke it.

The Telecom Committee’s recommendations will be based on a consensus of views among the voting members (DoD, DHS, and DoJ), or the entire committee (including advisors) if consensus among the voting members cannot be reached. Where voting is deadlocked, the Attorney General is empowered to make a unilateral recommendation to the FCC, while disclosing the views of opposing Telecom Committee members. Additionally, if the Telecom Committee Members are unable to reach a consensus about a recommendation to deny an application; grant an application based on, or modify a license to condition it upon, “non-standard” mitigation measures (undefined in the EO); or revoke a license, the Attorney General will make a unilateral recommendation to the FCC and the Telecom Committee will notify the president of the proposed recommendation. However, unlike CFIUS regulations, which empower the President to unwind or block certain transactions involving non-US persons, the EO does not specify what action, if any, the President may take in response to the Telecom Committee’s notification.

The Telecom Committee is also empowered (by a majority vote of its members) to review existing licenses to identify new or additional national security risks. The EO does not specify what procedures the Telecom Committee will follow, although it may provide additional detail about those procedures in the MoU.

National security risk assessment

Team Telecom traditionally based its recommendations on a national security risk assessment, with input from its members and other executive agencies. Under the new EO, the Director of National Intelligence, on behalf of the Telecom Committee but with input from the intelligence community, will prepare a written national security assessment for each license or application review the Telecom Committee conducts. The assessment is to be completed within 30 days of the earlier of (i) the date when the Telecom Committee determines the applicant has answered its requests for information, or (ii) the date when the Telecom Committee requests the assessment. The written assessment will be shared internally with the Telecom Committee’s members.

Relationship to CFIUS review process

As one might expect, applications subject to the Telecom Committee’s review frequently will be part of transactions that are subject to the review of CFIUS – another inter-agency committee with a much broader mandate to assess the national security risks of non-US investment in US businesses and, as necessary, block, condition, or unwind such investments. CFIUS is made up of similar constituent agencies, including DoJ, DHS, and DoD (but with the Department of Treasury, rather than DoJ, as its chair). But whereas CFIUS’s review procedures and timeline are defined by regulations, Team Telecom’s review was a largely informal process with no set timeline. As a result, transactions subject to Team Telecom’s and CFIUS’s jurisdiction sometimes face review by the same agencies but on different timelines.

For now, the EO does not fundamentally change this process. For example, the EO does not require the Telecom Committee to coordinate its recommendations with the results of parallel CFIUS review, and thus it is possible that the Telecom Committee and CFIUS could reach different views on the risks of a particular transaction or license application. Over time, the new EO, in conjunction with the anticipated MoU, may help harmonize CFIUS’s and the Telecom Committee’s reviews, and the Telecom Committee might wind up having a more prominent and visible role than CFIUS in reviewing transactions in the telecommunications sector. But those effects remain to be seen. As such, parties to transactions within CFIUS’s jurisdiction must still assess whether the transactions should, or must be, notified to CFIUS.

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We continue to monitor developments in this area. Please contact the authors or your usual Herbert Smith Freehills contacts for more information.