Q&A: Team Telecom review and national security
September 2023 | SPECIAL REPORT: TECHNOLOGY, MEDIA & TELECOMMUNICATIONS SECTOR
Financier Worldwide Magazine
September 2023 Issue
FW discusses Team Telecom and its impact on national security with Ari Q. Fitzgerald at Hogan Lovells US LLP.
FW: Could you provide an overview of the national security risks arising from foreign participation in the US telecommunications network? How would you characterise potential vulnerabilities?
Fitzgerald: Foreign participation in the US telecommunications network need not be a problem per se – as long as those foreign participants are well vetted and deemed trustworthy. The US economy, US national security and the safety and wellbeing of all American citizens depend on the availability, security, integrity and resilience of the US telecommunications network. Unfortunately, US global economic and military leadership make the US an attractive target for untrustworthy foreign participants. US national security experts believe that some foreign participants could use their technology and access to engage in espionage, sabotage and other nefarious activities. Vetting potential foreign participants is important because, in a digital world, US citizens conduct most of their personal and business affairs via the telecommunications network and US critical infrastructure is increasingly managed electronically or in the cloud, making the US potentially vulnerable to cyber attacks of all kinds.
FW: What factors led to a review of the informal relationship between executive branch agencies and the Federal Communications Commission (FCC) – known as ‘Team Telecom’ – for determining national security risks?
Fitzgerald: The original Team Telecom, created in 1997 when the US opened its telecommunications market to widespread foreign investment, had no statutory or legal basis or governing rules. Without meaningful oversight or procedural constraints, the Team Telecom review process was viewed by many industry stakeholders and foreign investors as opaque and unpredictable, lacking clear structure, timelines or scope. It was also time consuming, with Team Telecom review adding on average 250 days to the Federal Communications Commission’s (FCC’s) transaction or licence application review process – three to four times longer than standard applications. The FCC launched a rulemaking in 2016 in response to well-founded criticism of the process, but the proceeding stalled. Concerns from national security experts about Chinese involvement in US telecommunications networks reignited interest in Team Telecom reform. The Executive Order revamping the Team Telecom process was one of several actions taken across the US government to protect US telecommunications networks from suspected Chinese state-sponsored surveillance. These actions included new regulations broadening Team Telecom’s – now referred to formally as the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector – authority, actions by Congress and the FCC to address national security concerns related to Chinese equipment in US networks, the 2019 supply chain executive order, and FCC proceedings to rescind the common carrier authorisations of several Chinese-controlled telecommunications carriers.
FW: Could you explain the remit of the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector – the retooled Team Telecom process?
Fitzgerald: The Committee’s remit is to review applications and licences of companies in which foreign persons have a reportable ownership interest for risks to US national security, law enforcement, foreign policy and trade interests. In response to identified risks, the Committee must advise the FCC whether it should approve, deny or grant an application with conditions, modify an existing licence based on compliance with mitigation measures or revoke an existing licence. The Committee’s review authority extends to applications or licences in five key areas. First, international section 214 or common carrier international long-distance authority. Second, the assignment or transfer of control of domestic or international section 214 authority. Third, submarine cable landing licences. Fourth, the assignment or transfer of control of submarine cable landing licences. Finally, petitions seeking authority to exceed statutory indirect foreign ownership limits for broadcast and common carrier wireless and common carrier satellite earth station applicants, under section 310(b)(4) of the Communications Act.
“The new Team Telecom process enables the FCC to act in a more timely manner and with more transparency.”
FW: In what ways does the new Team Telecom formalise and improve the process of advising the FCC with its public-interest review of foreign participation and national security risks in the telecommunications sector?
Fitzgerald: The new Team Telecom process enables the FCC to act in a more timely manner and with more transparency. Specifically, the new process has established timelines for the Committee’s review, which set 120 and 90 day shot clocks respectively for the Committee’s initial review and a secondary assessment, where necessary. The process also allows 21 days for the Committee’s advisers to consider and oppose any recommendation. The National Telecommunications and Information Administration then has seven days to report the recommendation to the FCC. While the new timelines are helpful, the Committee still has the discretion to extend the applicable timelines. For example, the 120-day clock for the initial review does not start until the chair of the Committee determines that the application is complete. The Committee may also allow additional time for complex cases where consensus is not forthcoming.
FW: What is the extent of Team Telecom’s jurisdiction for reviewing FCC licences? To what extent can it unilaterally block transactions or impose mitigation conditions?
Fitzgerald: The Committee has broad authority to review applications and existing FCC licences involving reportable foreign ownership that may pose a risk to US national security, law enforcement, foreign policy and trade interests. Its ability to review existing licences ‘sua sponte’ is a significant expansion of authority beyond the original Team Telecom and has been used to evaluate whether existing licensees have failed to comply with conditions attached to their authorisations in the form of national security or mitigation agreements. While the ultimate authority to grant, deny or revoke licences still lies with the FCC, the FCC has historically accorded deference to determinations by the original Team Telecom and the Committee.
FW: What advice would you offer to potential foreign participants in the US telecommunications sector on planning their investment strategies and coordinating them with regulatory proceedings?
Fitzgerald: The Committee’s broad mandate to examine any form of foreign participation that might pose a national security, law enforcement, foreign policy or trade risk, combined with its novel ability to scrutinise the operations of existing licence holders that are not seeking any new authority from the FCC, allows the Committee to exert significant influence over the US telecommunications sector. Foreign participants in the US telecommunications sector need to understand the nature and purpose of the FCC’s review and the FCC application and Committee questionnaire, as well as the certifications required. They need to demonstrate that they are trustworthy participants in the US telecommunications ecosystem and that that they have no untrustworthy business – or other – affiliations. They should be prepared for a comprehensive and thorough review attuned to the FCC’s policy considerations. Foreign participants from China will need to show that they are not connected to the Chinese government or the Communist Party of China and are otherwise passive investors. Foreign investors from Russia, Iran and other countries deemed hostile to the US will be similarly scrutinised. As a practical matter, much of the responsibility for ensuring that proper disclosures regarding these foreign investors are made will fall to the licence applicants.
FW: How do you expect Team Telecom reviews to influence investment and ownership interests in the US telecommunications network over the months and years ahead?
Fitzgerald: I expect heightened scrutiny of foreign investment and participation, especially where there is a connection to China, to continue for the foreseeable future. This may limit access to capital and foreign participation in the US telecommunications ecosystem more generally. While all applicants and their investors will have to respond to detailed application questions, applicants with significant Chinese investment will likely face the most extensive review and restrictions. As a result, we may see a decreased presence of Chinese-owned companies and Chinese investment in the US telecommunications sector.
Ari Fitzgerald leads the firm’s communications, internet and media practice. He provides strategic, legal and policy advice on a wide range of communications and spectrum policy issues to some of the world’s largest and most dynamic communications network operators and equipment manufacturers, as well as industry trade associations and investors. He can be contacted on +1 (202) 637 5423 or by email: ari.fitzgerald@hoganlovells.com.
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