FCC Reforms Coordination of Executive Branch Foreign Ownership Review

The FCC has adopted new rules for coordinating with the Executive Branch on certain applications and petitions that involve foreign ownership. The new rules provide greater certainty, particularly with respect to timing.

Because Executive Branch review is often required in telecommunications and media transactions, the FCC’s new rules are important to companies and investors in those sectors. In addition, the new rules may encourage greater foreign investment in the U.S. telecommunications and media industries.

Background

The FCC refers certain applications and petitions that include companies with foreign ownership to Executive Branch agencies for review of national security and law enforcement issues. Applications involving Section 214 authorizations and submarine cable landing licenses where the applicant has a 10% or greater foreign owner, and petitions for declaratory ruling involving foreign ownership in excess of the benchmarks of Section 310(b) of the Communications Act of 1934, are generally referred for review. The Departments of Defense, Justice, and Homeland Security – informally known as Team Telecom – take the lead in reviewing these applications, and start their review by sending the applicant a set of “triage questions.” After receiving responses to these questions and any follow up inquiries, Team Telecom may notify the FCC that it has no objection to the grant of the application or petition, that it has no objection provided that the grant is conditioned on compliance with a mitigation agreement, or that it recommends that the FCC deny the application or petition. The current process is sometimes frustrating for applicants because there are no set timelines for Team Telecom’s review, and the review process can take many months.

In April 2020, the President signed Executive Order 13913 which established the Committee for the Assessment of Foreign Participation in the United States Telecommunications Sector. The Committee consists of officials from the Departments of Defense, Justice, and Homeland Security, and advisors from other Executive Branch departments and agencies. Going forward, this Committee will review applications and petitions that the FCC refers for review by the Executive Branch. The Committee must complete its initial review within 120 days after it determines that that an applicant’s responses to information requests are complete. An additional period of 90 days is permitted in cases where national security and law enforcement concerns cannot be addressed by standard mitigation measures. After completing its review, the Committee may notify the FCC that it has no objections to grant of the application, that it has no objection to a grant with mitigation measures, or that it recommends denial of the application.

New Criteria for Executive Branch Referrals

Under the new rules, the FCC will refer the following types of applications to the Committee:

• Applications for international Section 214 authorizations and submarine cable landing licenses, and applications to assign, transfer or modify such authorizations and licenses, where the applicant has 10% or greater direct or indirect foreign ownership.
• Petitions for Section 310(b) foreign ownership rulings for broadcast, common carrier wireless and common carrier satellite earth station authorizations.
• Additional types of applications if the FCC decides that its public interest determination would benefit from Executive Branch review.

The following types of applications are exempt from Executive Branch referral, although the FCC retains discretion to refer such applications and will notify the Committee when certain of these applications are filed:

• Applications for transfer of domestic Section 214 authorizations.
• Satellite earth station applications that do not involve requests for Section 310(b) foreign ownership rulings.
• Pro forma notifications and applications (i.e., where there is no substantial change in control).
• International Section 214 applications, submarine cable applications, and Section 310(b) petitions where the only reportable foreign ownership is through intermediate companies and ultimate ownership and control is held by U.S. citizens or entities.
• International Section 214 applications where the applicant has an existing mitigation agreement, there has been no new reportable foreign ownership since the effective date of that agreement, and the applicant agrees to continue to comply with the terms of the agreement.
• International Section 214 applications where the applicant was cleared by the Executive Branch within the past 18 months without mitigation, and there is no new reportable foreign ownership.

Except for the first two exclusions, an applicant will be required to make a specific showing that its application qualifies for one of these exclusions.

Information to be Provided and Content of Applications

There are five general categories of information that applicants will need to provide with applications that are referred to the Committee. The International Bureau has been directed to develop a set of Standard Questions which will address:

• Corporate structure and shareholder information.
• Relationships with foreign entities.
• Financial condition and circumstances.
• Compliance with applicable law.
• Business and operational information, including services to be provided and network infrastructure.

An applicant that is required to respond to the Standard Questions will send its responses to the Committee when, or before, it files its application.

Applicants for international Section 214 authorizations and submarine cable landing licenses, regardless of reportable foreign ownership, and all non-broadcast petitioners for foreign ownership rulings under Section 310(b), will be required to certify in the application that they will:

• Comply with the Communications Assistance for Law Enforcement Act (CALEA) and other applicable law and FCC rules.
• Make communications to, from and within the U.S., and related records, available to law enforcement authorities.
• Designate a U.S. citizen or permanent U.S. resident as a point of contact for requests and an agent for service of process.
• Affirm that information provided to the FCC and the Committee is complete and accurate, and inform the FCC and Committee of any changes in such information.
• Affirm that failure to fulfill any conditions of a grant of their application may result in license termination and other penalties.

Broadcast petitioners under Section 310(b) will not be required to make the first two certifications, but will be required to make the other three.

Timeframe for Executive Branch Review

The Executive Branch review process begins when an applicant submits its responses to the Standard Questions. The applicant must also submit a copy of the application to the Committee within three business days after filing.

The FCC will refer the application to the Committee when the FCC issues a public notice of acceptance of the application. By then, the Committee will already have received the Standard Question responses and the copy of the application from the applicant.

If the Committee determines that the FCC should defer action on the application pending Executive Branch review, it must file a request for deferral in the docket or public record associated with the application before the deadline for comments. The period for Executive Branch review is 120 days, which begins when the Committee Chair determines that responses from the applicant to the Standard Questions and any follow up requests for information (i.e., Tailored Questions) are complete. If the Committee does not send Tailored Questions to the applicant within 30 days after referral of the application to the Committee, the FCC will deem the 120-day period to have begun.

The Committee is required to provide updates on its review by filing reports in the docket or public record. These reports will include notification if a 90-day secondary assessment will be required and the basis for such secondary assessment, and notification that a final recommendation has been made.

Other Matters

The FCC also addressed several other significant points.

• The Department of Justice (National Security Division – Foreign Investment Review Section) will act as the single contact point for the FCC and applicants for the Committee review process.
• The Executive Order provides that the Committee may review an existing license which was granted after referral to the Executive Branch for new or additional risks to national security or law enforcement interests, and may recommend to the FCC the imposition of conditions on, or revocation of, the license. The FCC made clear that no action to modify or revoke a license would be taken without recognition of the licensee’s due process rights and an opportunity for the licensee to respond.
• Applicants for domestic and international Section 214 authorizations, and submarine cable landing licenses, must now identify in their applications the voting interests, as well as the equity interests, of persons and entities with a 10% or greater ownership interest in the applicant, and provide ownership diagrams showing these ownership interests.
• The FCC Order will become effective 30 days after publication in the Federal Register, except for certain information collection provisions which will become effective after approval by the Office of Management and Budget and Federal Register notice of OMB’s approval.

If you have any questions about the new rules or the foreign ownership review process, please contact any attorney in our office.