FCC, Executive Branch Said Eying Team Telecom Process Changes as Concerns Grow

The potential changes are being driven by political pressure to address national security issues involving Chinese telecom equipment makers, said industry attorneys. "It's impossible to view the renewed interest in Team Telecom reform independent from" congressional and administration concerns about Huawei and ZTE, said one attorney, who believes FCC Chairman Ajit Pai is "under intense pressure" from Sen. Tom Cotton, R-Ark., and the executive branch. Cotton's office and the White House didn't comment Wednesday.

There appears to be some sort of administration announcement coming signaling at least a willingness to work closely with the FCC on altering the process, said another attorney, citing "growing frustration" in industry with the reviews. The FCC currently defers to Team Telecom requests to delay action on communications transactions until the executive branch agencies resolve national security, law enforcement and public safety concerns. The process lacks a formal structure or timetable.

The House Digital Commerce Subcommittee plans a hearing Thursday on the Committee on Foreign Investment in the United States. CFIUS is a broader executive branch group that reviews foreign takeovers of U.S.-located companies of all types (see 1804190059).

O'Rielly raised Team Telecom concerns in saying a national security NPRM required the FCC to work with the executive branch on what equipment poses risks to the country, potential waivers and other matters (see 1804170038 and 1804180053). "We are going to need to have a better process than the opaque and unnecessarily lengthy one that exists under the current Team Telecom structure," he said April 17. "I am pleased that the Chairman agrees with me on this point, and I look forward to moving a related Team Telecom order in the very near future."

O'Rielly elaborated two day later, answering a question after his AEI speech. When "you have companies that have put capital at risk waiting for a decision from the FCC that is tied up into a process that they can't get their hands around -- that’s problematic," he said. He said the FCC should emulate the CFIUS process. "We can copy that model over to Team Telecom" to ensure reviews are structured and timely, he said. "We have the right to set up the structure in terms of what we expect from comments that are submitted to us from anybody, including the executive branch."

Reaction was sparse. FCC spokespersons, O'Rielly's office, other commissioners' offices, DOJ, NTIA and most industry parties we queried didn't comment this week. One of the industry attorneys noted a 2016 FCC rulemaking aimed at speeding Team Telecom reviews drew industry support but stalled after NTIA, on behalf of the executive branch, objected to rigid timelines and other proposals (see 1608190048 and 1609060068).

The proceeding was shelved until Pai "dusted it off" as national security concerns grew in Congress and the administration of President Donald Trump, particularly over the Chinese equipment makers, said the lawyer . The first nine footnotes in the NPRM cite recent presidential and congressional actions, documents and statements, including a letter from Sen. Cotton. The two main ways for the FCC to deal with such concerns was through the national security rulemaking begun last week and transaction reviews involving Team Telecom, the attorney said.

The executive branch has heard the industry "drumbeat" for "timelines and transparency," and wants to improve the process, said a key DOJ official last fall. "We have a desire to formalize the process," said Richard Sofield, director of DOJ's Foreign Investment Review Staff, National Security Division Nov. 7. "Stay tuned."

CFIUS Hearing

Private sector stakeholders sharply divided in written testimony before the planned House Digital Commerce Subcommittee hearing on the potential efficacy of the Foreign Investment Risk Review and Modernization Act (HR-4311/S-2098). That bill would expand CFIUS's purview to include reviews of non-passive foreign investment in a U.S. “critical technology company” or U.S. “critical infrastructure company.”

HR-4311 “is vague with regard to” the types of critical technology and infrastructure it would propose to include under CFIUS's purview, which “the business community rightly finds worrisome,” said American Enterprise Institute resident scholar Derek Scissors. He said the emphasis should be on “speeding” up CFIUS reform “given that technology loss has occurred for many years and the harm to national security is ongoing.” But the AFL-CIO believes HR-4311 “is reasoned legislation that balances the desire to maintain an open investment climate with important national security interests,” said Trade and Globalization Policy Specialist Celeste Drake. “We oppose efforts to diminish the scope of the legislation. Indeed, the AFL-CIO would recommend expanding it.”

“No one I know or have heard from objects to” HR-4311's “policy objective of enhancing our national security given emerging threats from countries of concern and the evolution of dual-use technologies,” said Akin Gump's Kevin Wolf, assistant secretary of Commerce-Export Administration under President Barack Obama's administration. even with a "small expansion in the scope of CFIUS’s review authority," He said some companies "may be less willing to invest in the United States with the actual or perceived extra burden and time involved in closing a transaction, particularly if there is not a significant expansion in CFIUS staff and aggressive compliance with deadlines.”

“Key parts” of HR-4311 “are vague, duplicative and unnecessarily burdensome, and should be amended in order for the legislation to be effective,” said Rock Creek Global Advisors Managing Director Clay Lowery, an assistant secretary of the Treasury-International Affairs under President George W. Bush. CFIUS “does not have adequate resources or expertise to deal with the massive number of cases that would result” from the current bill's language, he said. HR-4311 “should be one element of a comprehensive strategy to protect U.S. technology, which should also include reforming and enhancing our export control system,” Lowery said.